Reg. No.333-
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811-07021
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
INVESTMENT SERIES FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
(412) 288-1900
(Area Code and Telephone Number)
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
JOHN W. MCGONIGLE, ESQUIRE
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
Copies to:
Byron F. Bowman, Esquire Matthew G. Maloney, Esquire
Senior Corporate Counsel Dickstein Shapiro Morin & Oshinsky LLP
Federated Investors 2101 L Street, N.W.
Federated Investors Tower Washington, D.C. 20037
Pittsburgh, PA 15222
It is proposed that this filing will become effective on April 23, 1997
pursuant to Rule 488. (Approximate Date of Proposed Public Offering).
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, as amended, that it elects to register an indefinite amount of
securities under the Securities Act of 1933, as amended, and filed the
Notice required by that Rule for Registrant's fiscal year ended October 31,
1996 on December 30, 1996. Accordingly, no filing fee is submitted
herewith.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 1(A) OF FORM N-14 SHOWING LOCATION IN
PROSPECTUS OF INFORMATION REQUIRED BY FORM N-14
Item of Part A of Form N-14 and Caption or Location in
Caption Prospectus
1.Beginning of Registration
Statement and Outside Front Cross Reference Sheet;
Cover Page of Prospectus Cover Page
2.Beginning and Outside Back
Cover Page of Prospectus Table of Contents
3.Fee Table, Synopsis Information Summary of Expenses; Summary;
and Risk Factors Risk Factors
4.Information About the Information About the
Transaction Reorganization
5.Information About the Information About the Federated
Registrant Fund, and the William Penn Portfolio
6.Information About the Information About the Federated Fund
Company Being Acquired and the William Penn Portfolio
7.Voting Information Voting Information
8.Interest of Certain Persons
and Experts Not Applicable
9.Additional Information
Required for Reoffering by
Persons Deemed to be
Underwriters Not Applicable
WILLIAM PENN INTEREST INCOME FUND
QUALITY INCOME PORTFOLIO
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
Dear Shareholders:
The Board of Trustees and management of William Penn Interest
Income Fund: Quality Income Portfolio (the `William Penn Portfolio'') are
pleased to submit for your vote a proposal for the tax-free transfer of all
of the assets of the William Penn Portfolio to Federated Bond Fund (the
"Federated Fund"), a portfolio of Investment Series Funds, Inc. (the
`Corporation'') a mutual fund advised by Federated Advisers. The
Federated Fund has an investment objective similar to that of the William
Penn Portfolio in that it seeks to provide as high a level of current
income as is consistent with preservation of capital. As part of the
transaction, holders of shares in the William Penn Portfolio would receive
shares of the Federated Fund equal in value to their shares in the William
Penn Portfolio and the William Penn Portfolio would be liquidated.
Shareholders would not have to pay a sales load upon receiving such Shares,
nor would they be subject to any contingent deferred sales charges in
connection with the exercise of exchange rights or redemptions of such
Shares. Further, William Penn fund group shareholders who were invested as
of November 30, 1988, will not be charged a sales charge for future
purchases made in any Federated Fund, provided the account has remained
open.
The Board of Trustees of the William Penn Portfolio, as well as
Penn Square Management Corporation, the William Penn Portfolio's manager
and distributor, believe the proposed agreement and plan of reorganization
is in the best interests of William Penn Portfolio shareholders for the
following reasons:
-- The Federated Fund has an investment objective similar to that
of the William Penn Portfolio and offers an investment portfolio
which invests in fixed income securities to achieve current income.
-- The Federated fund offers competitive performance.
-- As an investor in the Federated Fund, shareholders would have
access to a dramatically expanded array of investment alternatives
in the Federated retail family of funds.
-- Federated Investors also has an excellent reputation for
customer servicing, having received a #1 rating for five surveys
in a row by DALBAR, Inc. The shareholder services for the
Federated funds include advanced technological systems that result
in quick shareholder access to a broad spectrum of information.
The Federated Fund is managed by Federated Advisers, a subsidiary
of Federated Investors. Federated Investors was founded in 1955 and is
located in Pittsburgh, Pennsylvania. Federated Advisers and other
subsidiaries of Federated Investors serve as investment advisers to a
number of investment companies and private accounts. With over $110
billion invested across more than 300 funds under management and/or
administration by its subsidiaries, 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 family
management who founded the company in 1955. Federated funds are presently
at work in and through 4,500 financial institutions nationwide.
We believe the transfer of the William Penn Portfolio's assets in
this transaction presents an exciting investment opportunity for our
shareholders. Your vote on the transaction is critical to its success.
The transfer will be effected only if approved by a majority of all of the
William Penn Portfolio's outstanding shares on the record date voted in
person or represented by proxy. We hope you share our enthusiasm and will
participate by casting your vote in person, or by proxy if you are unable
to attend the meeting. Please read the enclosed prospectus/proxy statement
carefully before you vote.
THE BOARD OF TRUSTEES BELIEVES THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF THE WILLIAM PENN PORTFOLIO AND ITS SHAREHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL.
Thank you for your prompt attention and participation.
Sincerely,
James E. Jordan
President
WILLIAM PENN INTEREST INCOME FUND
QUALITY INCOME PORTFOLIO
2650 WESTVIEW DRIVE
WYOMISSING, PA 19610
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO SHAREHOLDERS OF WILLIAM PENN INTEREST INCOME FUND,
QUALITY INCOME PORTFOLIO:
A Special Meeting of Shareholders of Quality Income Portfolio, a
portfolio of William Penn Interest Income Fund (the `William Penn
Portfolio') will be held 9:00 a.m. (general meeting) and 10:00 a.m. (Fund
meeting) on May 29,1997 at: Sheraton Berkshire Motor Inn, 1741 Paper Mill
Road, Wyomissing, PA 19610, for the following purposes:
1. To approve or disapprove a proposed Agreement and Plan of
Reorganization between the William Penn Portfolio and Federated Bond Fund
(the "Federated Fund"), a portfolio of Investment Series Funds, Inc.,
whereby the Federated Fund would acquire all of the assets and assume
certain liabilities of the William Penn Portfolio in exchange for the
Federated Fund's Class A Shares and Class C Shares to be distributed pro
rata by the William Penn Portfolio to the holders of its Class A Shares and
Class C Shares respectively in complete liquidation of the William Penn
Portfolio; and
2. To transact such other business as may properly come before the
meeting or any adjournment thereof.
By Order of the Board of Trustees,
Dated: [ ] Sandra J. Houck
Secretary
Shareholders of record at the close of business on [ ],
are entitled to vote at the meeting. Whether or not you plan to attend the
meeting, please sign and return the enclosed proxy card. Your vote is
important.
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AND TO SAVE THE EXPENSE OF
FURTHER MAILINGS, PLEASE MARK YOUR PROXY CARD, SIGN IT, AND RETURN IT IN
THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. YOU MAY REVOKE YOUR PROXY AT ANY TIME AT OR BEFORE THE MEETING OR
VOTE IN PERSON IF YOU ATTEND THE MEETING.
PROSPECTUS/PROXY STATEMENT
[ ]
Acquisition of the Assets of
QUALITY INCOME PORTFOLIO,
a portfolio of WILLIAM PENN INTEREST INCOME FUND
2650 Westview Drive
Wyomissing, PA 19610
Telephone Number: 1-800-523-8440
By and in exchange for Class A Shares and Class C Shares of
FEDERATED BOND FUND,
a portfolio of INVESTMENT SERIES FUNDS, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-341-7400
This Prospectus/Proxy Statement describes the proposed Agreement
and Plan of Reorganization (the "Plan") whereby Federated Bond Fund (the
`Federated Fund''), a portfolio of Investment Series Funds, Inc. (the
`Corporation''), a Maryland corporation, would acquire all of the assets
and assume certain liabilities of Quality Income Portfolio (the `William
Penn Portfolio'), a portfolio of William Penn Interest Income Fund, a
Pennsylvania common law trust, in exchange for the Federated Fund's Class A
Shares and Class C Shares to be distributed pro rata by the William Penn
Portfolio to the holders of its Class A Shares and Class C Shares,
respectively, in complete liquidation of the William Penn Portfolio. As a
result of the Plan, each shareholder of the William Penn Portfolio will
become the owner of the corresponding Federated Fund's Class A Shares and
Class C Shares having a total net asset value equal to the total net asset
value of his or her holdings in the William Penn Portfolio's Class A Shares
and Class C Shares.
THE BOARD OF TRUSTEES OF THE WILLIAM PENN PORTFOLIO UNANIMOUSLY
RECOMMENDS APPROVAL OF THE PLAN.
The shares of each of the Federated Fund and the William Penn
Portfolio represent interests in separate open-end, diversified management
investment companies. The Federated Fund's investment objective is to
provide as high a level of current income as is consistent with the
preservation of capital. The William Penn Portfolio's investment objective
is to provide the highest level of current income consistent with
preservation of capital from investment in high grade bonds and other fixed
income securities. For a comparison of the investment policies of the
Federated Fund and the William Penn Portfolio, see "Summary - Investment
Objectives, Policies and Limitations."
This Prospectus/Proxy Statement should be retained for future
reference. It sets forth concisely the information about the Federated
Fund that a prospective investor should know before investing. This
Prospectus/Proxy Statement is accompanied by the Prospectus of the
Federated Fund dated February 28, 1997, which is incorporated herein by
reference. Statements of Additional Information for the Federated Fund
dated February 28, 1997 (relating to the Federated Fund's Prospectus of the
same date) and [ ], 1997 (relating to this Prospectus/Proxy
------------
Statement), and the Annual Report to Shareholders dated October 31, 1996,
all containing additional information, have been filed with the Securities
and Exchange Commission and are incorporated herein by reference. Copies
of the Statements of Additional Information and the Annual Report may be
obtained without charge by writing or calling the Federated Fund at the
address and telephone number shown above.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT 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 RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
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/PROXY STATEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Penn Square Management Corp.
TABLE OF CONTENTS
Page No.
Summary of Expenses.......................................
Summary...................................................
About the Proposed Reorganization ......................
Investment Objectives, Policies and Limitations ........
Advisory and Other Fees ................................
Distribution Arrangements ..............................
Purchase, Exchange and Redemption Procedures ...........
Dividends ..............................................
Tax Consequences .......................................
Risk Factors..............................................
Information About the Reorganization......................
Background and Reasons for the Proposed Reorganization .
Agreement Among Penn Square Management Corporation,
The William Penn Company and Federated ................
Description of the Plan of Reorganization ..............
Description of Federated Fund Shares ...................
Federal Income Tax Consequences ........................
Comparative Information on Shareholder Rights and Obligations
Capitalization .........................................
Information About the Federated Fund and the William Penn Portfolio
Federated Bond Fund ....................................
William Penn Interest Income Fund, Quality Income Portfolio
Voting Information........................................
Outstanding Shares and Voting Requirements .............
Dissenter's Right of Appraisal .........................
Other Matters and Discretion of Persons Named in the Proxy
Agreement and Plan of Reorganization -- Exhibit A.........
SUMMARY OF EXPENSES
(CLASS A SHARES)
William Penn Pro Forma
Federated Fund Portfolio Combined
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.50%(1) 4.75% 4.50%(1)
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) 0.00%(2) None 0.00%(2)
Redemption Fee (as a percentage of
amount redeemed, if applicable)(3) None None None
Exchange Fee None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
(after expense reimbursements or waivers)
Management Fee 0.55%(4) 0.31% 0.55%(4)
12b-1 Fee(5) 0.00% 0.15% 0.00%
Total Other Expenses(6) 0.50% 0.29% 0.50%
Total Operating Expenses(7) 1.05% 0.75% 1.05%
(1) This sales charge would not be applicable to Class A Shares of the
Federated Fund acquired through the proposed reorganization, or to William
Penn Shareholders invested as of November 30, 1988, for future purchases of
any of Federated Funds provided the account remains open.
(2) Class A Shares purchased with the proceeds of a redemption of shares
of an unaffiliated investment company purchased or redeemed with a sales
charge and not distributed by Federated Securities Corp. Would not be
charged a sales charge but may be charged a contingent deferred sales
charge of 0.50% for redemptions made within one full year of purchase. For
a more complete description, see `Summary - Distribution Arrangements.''
This contingent deferred sales charge would not be applicable to Class A
Shares of the Federated Fund acquired through the proposed reorganization.
(3) Wire-transferred redemptions of Class A Shares of the Federated Fund
of less than $5,000 may be subject to additional fees. A $10.00 fee will
be charged for redemptions of William Penn Portfolio shares by wire
transfer.
(4) The management fee has been reduced to reflect the voluntary waiver of
a portion of the management fee. The adviser can terminate this voluntary
waiver at any time in its sole discretion. The maximum management fee is
0.75%.
(5) Class A Shares of the Federated Fund has no present intention of
paying or accruing the 12b-1 fee during the fiscal year ending October 31,
1997. If Class A Shares of the Federated Fund were paying or accruing the
12b-1 fee, Class A Shares would be able to pay up to 0.25% of its average
daily net assets for the 12b-1 fee. The 12b-1 fee with respect to the
William Penn Portfolio has been reduced to reflect the voluntary waivers,
the maximum 12b-1 fee for Class A Shares is 0.50%.
(6) Total Other Expenses include a shareholder services fee of 0.20% for
the Federated Fund and the Pro Forma Combined Fund and a shareholder
services fee of 0.00% for the William Penn Portfolio. The shareholder
services fee has been reduced to reflect the voluntary waiver of a portion
of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25% for the Federated Fund and the
Pro Forma Combined Fund and 0.50% for the William Penn Portfolio.
(7) The total operating expenses for Class A Shares of the Federated Fund
are based on expenses incurred during its fiscal year ended October 31,
1996, and would have been 1.30% absent the voluntary expense waiver. The
total operating expenses for the William Penn Portfolio are based upon
expenses incurred by the William Penn Portfolio during its fiscal year
ended December 31, 1996, and would have been 1.22% without expense
reimbursements.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of shares of each of the
Federated Fund, the William Penn Portfolio and the Pro Forma Combined Fund
will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Summary - Advisory and Other Fees"
and "Summary - Distribution Arrangements."
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM FRONT-END SALES CHARGE PERMITTED UNDER THE RULES OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC.
EXAMPLES
The Examples below are intended to assist an investor in
understanding the various costs that an investor will bear directly or
indirectly. The Examples assume payment of operating expenses at the
levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred
sales charges since such sales charges are not applicable to Federated Fund
Class A Shares received as a result of the proposed reorganization.
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. Expenses
would be the same if there were no redemptions at the
end of each time period. 1 year 3 years 5 years10 years
Federated Fund $11 $33 $58 $128
William Penn Portfolio $8 $24 $42 $93
Pro Forma Combined $11 $33 $58 $128
(2) This Example includes sales charges since Class A Shares purchased
subsequent to the reorganization may be subject to sales charges. For a
more complete description of sales charges, contingent deferred sales
charges and exemptions from such charges, reference is hereby made to the
Prospectus of the Federated Fund dated February 28, 1997, and the
Prospectus of the William Penn Portfolio dated March 15, 1996, each of
which is incorporated herein by reference thereto.
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each time
period and (3) payment of the maximum sales
charge. 1 year 3 years 5 years10 years
Federated Fund $55 $77 $100 $167
William Penn Portfolio $55 $70 $87 $136
Pro Forma Combined $55 $77 $100 $167
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY OF EXPENSES
(CLASS C SHARES)
William Penn Pro Forma
Federated Fund Portfolio Combined
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) None 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) 1.00% 1.00% 1.00%
Redemption Fee (as a percentage of
amount redeemed, if applicable) None None None
Exchange Fee None None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
(after expense reimbursements or waivers)
Management Fee 0.55%(2) 0.31% 0.55%(2)
12b-1 Fee(3) 0.75% 0.75% 0.75%
Total Other Expenses(4) 0.55% 0.43% 0.55%
Total Operating Expenses(5) 1.85% 1.49% 1.85%
(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 one year of their purchase date. For a more complete description,
see `Summary - Distribution Arrangements.''
(2) The management fee has been reduced to reflect the voluntary waiver of
a portion of the management fee. The adviser can terminate this voluntary
waiver at any time in its sole discretion. The maximum management fee is
0.75%.
(3) The maximum 12b-1 fee for Class C Shares of the Federated Fund and the
William Penn Portfolio is 0.75%.
(4) Total Other Expenses include a shareholder services fee of 0.25% for
the Federated Fund and the Pro Forma Combined Fund and a shareholder
services fee of 0.15% for the William Penn Portfolio. The shareholder
services fee has been reduced to reflect the voluntary waiver of a portion
of the shareholder services fee. The shareholder service provider can
terminate this voluntary waiver at any time at its sole discretion. The
maximum shareholder services fee is 0.25%.
(5) The Total Operating Expenses for Class C Shares of the Federated Fund
are based on expenses incurred during its fiscal year ending October 31,
1996, and would have been 2.05% absent the voluntary waivers of portions of
the management fee and the shareholder services fee. The total operating
expenses for the William Penn Portfolio are based upon expenses incurred by
the William Penn Portfolio during its fiscal year ended December 31, 1996,
and would have been 1.96% without expense reimbursements.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that a shareholder of shares of each of the
Federated Fund, the William Penn Portfolio and the Pro Forma Combined Fund
will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Summary - Advisory and Other Fees"
and "Summary - Distribution Arrangements."
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.
EXAMPLES
The Examples below are intended to assist an investor in
understanding the various costs that an investor will bear directly or
indirectly. The Examples assume payment of operating expenses at the
levels set forth in the table above.
(1) This Example does not include sales charges or contingent deferred
sales charges since such sales charges are not applicable to Federated Fund
Class C Shares received as a result of the proposed reorganization.
An investor would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period. Expenses
would be the same if there were no redemptions at the
end of each time period. 1 year 3 years 5 years10 years
Federated Fund $19 $58 $100 $217
William Penn Portfolio $15 $47 $81 $178
Pro Forma Combined $19 $58 $100 $217
(2) This Example includes contingent deferred sales charges since Class C
Shares purchased subsequent to the reorganization may be subject to such a
sales charge. For a more complete description of contingent deferred sales
charges and exemptions from such charges, reference is hereby made to the
Prospectus of the Federated Fund dated February 28, 1997, and the
Prospectus of the William Penn Portfolio dated March 15, 1996, each of
which is incorporated herein by reference thereto.
An investor would pay the following expenses
on a $1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each time
period. 1 year 3 years 5 years10 years
Federated Fund $29 $58 $100 $217
William Penn Portfolio $26 $47 $81 $178
Pro Forma Combined $29 $58 $100 $217
THE ABOVE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
SUMMARY
This summary is qualified in its entirety by reference to the
additional information contained elsewhere in this Prospectus/Proxy
Statement, the Statement of Additional Information dated April ,
1997, related to this Prospectus/Proxy Statement, the Prospectus of the
Federated Fund dated February 28, 1997, the Statement of Additional
Information of the Federated Fund dated February 28, 1997, the Prospectus
of the William Penn Portfolio dated March 15, 1996, the Statement of
Additional Information of the William Penn Portfolio dated March 15, 1996,
and the Plan, a copy of which is attached to this Prospectus/Proxy
Statement as Exhibit A, all of which are incorporated herein by reference
thereto.
About the Proposed Reorganization
The Board of Trustees of the William Penn Portfolio has voted
unanimously to recommend to holders of the Class A Shares and Class C
Shares of the William Penn Portfolio the approval of the Plan whereby the
Federated Fund would acquire all of the assets and assume certain
liabilities of the William Penn Portfolio in exchange for the Federated
Fund's Class A Shares and Class C Shares to be distributed pro rata by the
William Penn Portfolio to holders of its Class A Shares and Class C Shares,
respectively, in complete liquidation and dissolution of the William Penn
Portfolio (the "Reorganization"). As a result of the Reorganization, each
shareholder of the William Penn Portfolio Class A Shares and Class C Shares
will become the owner of the Federated Fund's Class A Shares or Class C
Shares, respectively, having a total net asset value equal to the total net
asset value of his or her holdings in the William Penn Portfolio on the
date of the Reorganization, i.e., the Closing Date (as hereinafter
defined).
As a condition to the Reorganization transactions, the Federated
Fund and the William Penn Portfolio will receive an opinion of counsel that
the Reorganization will be considered a tax-free "reorganization" under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
`Code''), so that no gain or loss will be recognized by either the
Federated Fund or the William Penn Portfolio or the shareholders of the
William Penn Portfolio. The tax basis of the Federated Fund's
corresponding Class A Shares and Class C Shares received by William Penn
Portfolio's Class A Shares and Class C Shares shareholders will be the same
as the tax basis of their shares in the William Penn Portfolio. After the
acquisition is completed, the William Penn Portfolio will be dissolved.
Investment Objectives, Policies and Limitations
The investment objective of the Federated Fund is to provide as
high a level of current income as is consistent with preservation of
capital. This investment objective may not be changed without the
affirmative vote of a majority of the outstanding voting securities of the
Federated Fund, as defined in the Investment Company Act of 1940, as
amended (the `1940 Act'').
The investment objective of the William Penn Portfolio is to
provide the highest level of current income consistent with preservation of
capital from investment in high grade bonds and other fixed income
securities. This investment objective may not be changed without the
affirmative vote of a majority of the outstanding voting securities of the
William Penn Portfolio, as defined in the 1940 Act.
The Federated Fund invests primarily in a professionally managed,
diversified portfolio of bonds. Under normal circumstances, at least 65%
of the Federated Fund's net assets will be invested in such bonds.
Additionally, at least 65% of the Federated Fund's net assets will be
invested in investment grade securities, including repurchase agreements
collateralized by such investment grade securities. Investment grade
securities are generally described as securities that are rated in one of
the top four ratings categories by a nationally recognized statistical
rating organization (`NRSRO''), such as Moody's Investors Service, Inc.
(`Moody's''), Standard & Poor's Ratings Group (``S&P''), or Fitch Investors
Service, Inc. (`Fitch'') or that are unrated but determined by the
Federated Fund's investment adviser to be of comparable quality. Permitted
investments include: domestic or foreign corporate debt obligations;
obligations of the United States; notes, bonds, and discount notes of the
following U.S. government agencies or instrumentalities, such as Federal
Home Loan Banks, Federal National Mortgage Association, Government National
Mortgage Association, Farm Credit System (including the National Bank for
Cooperatives and Banks for Cooperatives), Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, Student Loan Marketing Association, Federal Home
Loan Mortgage Corporation, or National Credit Union Administration; taxable
municipal debt obligations (as a matter of operating policy, the lowest
rated municipal debt obligations in which the Federated Fund will invest
will be rated BBB or better by an NRSRO, or which are of comparable quality
in the judgment of the Federated Fund's investment adviser); asset-backed
securities; commercial paper that matures in 270 days or less and is rated
A-1 or A-2 by S&P, P-1 or P-2 by Moody's, or F-1 or F-2 by Fitch; time and
savings deposits (including certificates of deposit) in commercial or
savings banks whose accounts are insured by the Bank Insurance Fund
(`BIF''), or in institutions whose accounts are insured by the Savings
Association Insurance Fund (`SAIF''), including certificates of deposit
issued by, and other time deposits in, foreign branches of BIF-insured
banks which, if negotiable, mature in six months or less or if not
negotiable, either mature in ninety days or less, or may be withdrawn upon
notice not exceeding ninety days; bankers' acceptances issued by a BIF-
insured bank, or issued by the bank's Edge Act subsidiary and guaranteed by
the bank, with remaining maturities of nine months or less. The total
acceptances of any bank held by the Federated Fund cannot exceed 0.25% of
the bank's total deposits according to the bank's last published statement
of condition preceding the date of acceptance; preferred stock and other
equity-related securities which generally have bond-like attributes,
including zero coupon and/or convertible securities; convertible
securities, irrespective of their ratings; equity securities; other
securities which are deemed by the Federated Fund's investment adviser, to
be consistent with the Federated Fund's investment objective; and
repurchase agreements collateralized by acceptable instruments. Under
normal circumstances, the Federated Fund will not invest more than 10% of
its total assets in equity securities. Unless otherwise stated in the
prospectus, the investment policies of the Federated Fund may not be
changed by the Board of Trustees without shareholder approval.
The William Penn Portfolio invests in investment grade bonds and
other fixed-income securities issued by corporations, municipalities, and
the U.S. Government. Investment grade bonds are generally considered to be
those having one of the four highest grades assigned by S&P (AAA, AA, A or
BBB) or Moody's (Aaa, Aa, A, or Baa). Pursuant to the investment policies
of the William Penn Portfolio, at least 70% of the William Penn Portfolio
will be invested in the following kinds of fixed-income securities: (1)
debt securities which at the time of purchase are rated in the top three
grades (i.e., A or better) by Moody's Investment Service, Inc.
(`Moody's'') or Standard & Poor's Corp. (``S&P''); (2) securities of or
guaranteed by the U.S. Government, its agencies or instrumentalities; (3)
commercial paper of companies having, at the time of purchase, an issue of
outstanding debt securities rated A or better by either Moody's or S&P, or
commercial paper rated A-1 or A-2 by S&P, or Prime 1 or Prime 2 by Moody's.
The remaining 30% of the William Penn Portfolio may be invested in the
following kinds of assets: (1) debt securities not included in the three
highest grades referred to above; (2) convertible securities and preferred
stocks; (3) foreign bonds and other fixed-income securities denominated in
foreign currencies where, in the opinion of the Adviser and/or Sub-Adviser,
the combination of current yield, currency value, and appreciation
potential offers attractive expected returns. The value of such foreign
denominated securities may not exceed 15% of the portfolio at the time of
purchase; (4) futures contracts, options on futures contracts, and options
on fixed-income securities, provided that the securities underlying such
transactions do not exceed 20% of the assets at the time of purchase. The
portfolio will engage in futures and/or options transactions only for
hedging purposes and only if such transactions are consistent with its
investment objectives and policies; (5) interest rate and/or currency
swaps, provided that the securities underlying such transactions do not
exceed 20% of the portfolio's assets at the time of purchase. The William
Penn Portfolio will not invest in securities rated below B by S&P or
Moody's. For defensive purposes under certain market conditions, the
William Penn Portfolio may temporarily invest in short-term money market
instruments eligible for purchase by the William Penn Portfolio. Unless
otherwise designated in the prospectus, the investment policies of the
William Penn Portfolio may be changed by the Board of Trustees without
shareholder approval.
Both the Federated Fund and the William Penn Portfolio are subject
to certain investment limitations. The Federated Fund may not: borrow
money directly or through reverse repurchase agreements or pledge
securities except, under certain circumstances, the Federated Fund may
borrow up to one-third of the value of its total assets and pledge up to
10% of the value of those assets to secure such borrowings; lend any of its
assets except portfolio securities up to one-third of the value of its
total assets; 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 75% of the value of its total assets, invest more than 5% in
securities of any one issuer other than cash, cash items or securities
issued or guaranteed by the government of the United States, its agencies,
or instrumentalities and repurchase agreements collateralized by such
securities. The above investment limitations cannot be changed without
shareholder approval..
The William Penn Portfolio may not: (1) invest more than 5% of the
value of its assets in the securities of any single issuer (except of the
U.S. Government, its agencies or instrumentalities), (2) purchase more than
10% of the voting securities of any issuer; (3) invest more than 5% of its
assets in companies with a continuous operating history (including
predecessors) of less than 3 years; (4) invest more than 25% of its assets
in any one industry, with the exceptions of (i) obligations of the U.S.
Government or its agencies or instrumentalities, and (ii) certificates of
deposit or bankers' acceptances; (5) borrow money, except from a bank and
only for temporary or emergency purposes. Any such borrowings may not
exceed 5% of the lower of the value or cost of the portfolio's total
assets; (6) pledge, mortgage, or otherwise hypothecate its assets to an
extent greater than 5% of the value of its total assets; (7) invest more
than 10% of the value of its assets in illiquid securities, including
restricted securities, and repurchase agreements maturing in more than
seven days. The above investment limitations of the William Penn Portfolio
cannot be changed without shareholder approval.
In addition to the policies and limitations set forth above, both
the Federated Fund and the William Penn Portfolio are subject to certain
additional investment policies and limitations, described in the Federated
Fund's Statement of Additional Information dated February 28, 1997, and the
William Penn Portfolio's Statement of Additional Information dated March
15, 1996. Reference is hereby made to the Federated Fund's Prospectus and
Statement of Additional Information, each dated February 28, 1997, and to
the William Penn Portfolio's Prospectus and Statement of Additional
Information, each dated March 15, 1996, which set forth in full the
investment objective, policies and investment limitations of each of the
Federated Fund and the William Penn Portfolio, all of which are
incorporated herein by reference thereto.
Advisory and Other Fees
The annual investment advisory fee for the Federated Fund is 0.75%
of the Federated Fund's average daily net assets. The investment adviser
to the Federated Fund, Federated Advisers ("Federated Advisers"), a
subsidiary of Federated Investors, may voluntarily choose to waive a
portion of its advisory fee or reimburse the Federated Fund for certain
operating expenses. This voluntary reimbursement of expenses may be
terminated by Federated Advisers at any time in its sole discretion. The
maximum annual management fee for the William Penn Portfolio is 0.65% of
average daily net assets of the William Penn Portfolio. The investment
adviser of the William Penn Portfolio is Penn Square Management
Corporation. The adviser is a wholly owned subsidiary of The William Penn
Company, New York, York. Miller, Anderson & Sherrered LLP (the Sub-
Adviser) serves as an investment adviser for the William Penn Portfolio
pursuant to a sub-advisory agreement with the Adviser. The Sub-Adviser, a
wholly owned subsidiary of Morgan Stanley Group Inc., was organized in 1969
and is located in West Conshohocken, Pennsylvania. The Sub-Adviser
provides management services to employee benefit plans, endowment funds,
foundations, and other institutional investors, and currently manages
assets in excess of $30 billion. Under an agreement entered into with the
Adviser, the Sub-Adviser provides investment advisory services for the
William Penn Portfolio and is compensated solely by the Adviser. The
Adviser pays the Sub-Adviser a fee based on the aggregate net asset value
of the William Penn Portfolios, as follows: 0.375% on the first
$50,000,000, 0.25% on the next $50,000,000 and 0.20% over $100,000,000.
Federated Services Company, an affiliate of Federated Advisers,
provides certain administrative personnel and services necessary to operate
the Federated Fund at an annual rate based upon the average aggregate daily
net assets of all funds advised by Federated Advisers and its affiliates.
The rate charged is 0.15% on the first $250 million of all such funds'
average aggregate daily net assets, 0.125% on the next $250 million, 0.10%
on the next $250 million and 0.075% of all such funds' average aggregate
daily net assets in excess of $750 million, with a minimum annual fee per
portfolio of $125,000 plus $30,000 for each additional class of shares of
any such portfolio. Federated Services Company may choose voluntarily to
waive a portion of its fee. The administrative fee expense for the
Federated Fund's fiscal year ended October 31, 1996 was $267,242.
Administrative personnel and services necessary to operate the William Penn
Portfolio are currently provided by Penn Square Management Corporation and
are included in the annual transfer agent fee for the William Penn
Portfolio.
The Federated Fund has entered into a Shareholder Services
Agreement under which it may make payments of up to 0.25% of the average
daily net asset value of each of the Class A Shares and Class C Shares to
obtain certain personal services for shareholders and the maintenance of
shareholder accounts. The Shareholder Services Agreement provides that
Federated Shareholder Services ("FSS"), an affiliate of Federated Advisers,
either will perform shareholder services directly or will select financial
institutions to perform such services. Financial institutions will receive
fees based upon shares owned by their clients or customers. The schedule
of such fees and the basis upon which such fees will be paid is determined
from time to time by the Federated Fund and FSS.
The total annual operating expenses for Class A Shares and Class C
Shares of the Federated Fund were 1.05% and 1.85% respectively of average
daily net assets (after waivers) for its most recent fiscal year. The
total annual operating expenses for Class A Shares and Class C Shares of
the William Penn Portfolio were 0.75% and 1.49% respectively of average
daily net assets (after expense reimbursements) for its most recent fiscal
year. Without such waivers or reimbursements, the expense ratios of the
Federated Fund would have been 1.30% (Class A Shares), 2.05% (Class C
Shares) and for the William Penn Portfolio, 1.22% (Class A Shares) and
1.96% (Class C Shares).
Distribution Arrangements
Federated Securities Corp. ("FSC"), an affiliate of Federated
Advisers, is the principal distributor for shares of the Federated Fund.
The Federated Fund has adopted a Rule 12b-1 Distribution Plan (the
`Distribution Plan'') pursuant to which the Federated Fund will pay a fee
to the distributor in an amount computed at an annual rate of up to 0.75%
of the average daily net assets of the Class C Shares and up to 0.25% for
Class A Shares to finance any activity which is principally intended to
result in the sale of Class C Shares subject to the Distribution Plan. All
or a portion of the Rule 12b-1 fee may be paid to financial institutions
for their efforts in selling Class A Shares and Class C Shares. FSC may
offer to pay financial institutions, at the time of purchase, an amount
equal to 1% of the net asset value of Class C Shares purchased by their
clients. These payments will be made directly by the distributor from its
assets, and will not be made from the assets of the Fund. The Federated
Fund does not currently make payments to the distributor or charge a fee
under the Distribution Plan for Class A Shares, and shareholders of Class A
Shares will be notified if the Federated Fund intends to charge a fee under
the Distribution Plan. In addition, FSC and FSS, from their own assets,
may pay financial institutions supplemental fees as financial assistance
for providing substantial sales services, distribution-related support
services or shareholder services with respect to the Class A Shares and
Class C Shares of the Federated 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 FSC may be reimbursed by
Federated Advisers or its affiliates. If a financial institution elects to
waive receipt of this payment, the Federated fund will waive any applicable
contingent deferred sales charge (such contingent deferred sales charges
are discussed below).
Penn Square Management Corporation is the principal distributor for
shares of the William Penn Portfolio. The William Penn Portfolio has
adopted a Rule 12b-1 Distribution Plan (the "Rule 12b-1 Plan") pursuant to
which the William Penn Portfolio reimburses Penn Square Management
Corporation for certain of its expenses incurred in connection with its
services as distributor at an annual rate not to exceed 0.50% of the
average daily net assets of the William Penn Portfolio's Class A Shares.
The fee may be used by Penn Square Management Corporation for its expenses
incurred in connection with (a) advertising and marketing Class A Shares;
(b) printing and distributing the Prospectus; (c) implementing and
operating the Rule 12b-1 Plan; and (d) payments made by the distributor for
servicing fees to broker/dealers, financial institutions, or other industry
professionals (`Service Organizations'') for distribution and/or
shareholder administrative services provided to their customers who own
Class A Shares. Pursuant to a Servicing Agreement with Penn Square
Management Corporation, a Service Organization may receive, on an annual
basis, up to 0.50% of the average daily net asset value of the Class A
Shares owned by shareholders with whom the Service Organization has a
servicing relationship. The services provided by a Service Organization
pursuant to a Servicing Agreement may include distribution or shareholder
administrative services, including establishing and maintaining shareholder
accounts, sending confirmations of transactions, forwarding financial
reports and other communications to shareholders, and responding to
shareholder inquiries regarding the William Penn Portfolio. The William
Penn Portfolio has adopted a Distribution Plan for Class C Shares to
compensate the distributor for its services and costs in distributing Class
C Shares. Under the Rule 12b-1 Plan, the William Penn Portfolio pays Penn
Square Management Corporation an annual 12b-1 Distribution Fee of 0.75% per
year on Class C Shares. Penn Square Management Corporation also receives a
Service Fee of 0.25% per year. Both fees are computed on the average
annual net assets of Class C Shares, determined as of the close of each
regular business day. The distribution fee allows investors to buy Class C
Shares without a front end sales charge while permitting the distributor to
compensate dealers who sell Class C Shares. The distribution and service
fee may increase Class C expenses by 1.00% of average net assets per year.
Penn Square Management Corporation pays sales commissions of 1.00% of the
purchase price to dealers from its own resources at the time of sale. Penn
Square Management Corporation retains the distribution fee during the first
year shares are outstanding to recoup the sales commission it pays, the
advances of service fee payments it makes, and its financing costs. Penn
Square Management Corporation plans to pay the distribution fee as an
ongoing commission to the dealer on Class C Shares that have been
outstanding for a year or more. Penn Square Management Corporation
receives no other compensation for its services as distributor, except that
the sales charge will be paid to the distributor. Penn Square Management
Corporation may, in turn, pay such sales charge to broker/dealers as a
commission for generating sales of Class C Shares.
Certain costs exist with respect to the purchase and sale of
Federated Fund and William Penn Portfolio shares. Shares of the Federated
Fund and shares of the William Penn Portfolio are sold at their net asset
value next determined after an order is received, plus any applicable sales
charge. The Federated Fund Class A Shares and William Penn Portfolio Class
A Shares have a maximum sales charge of 4.50% and 4.75%, respectively. No
sales charge will be imposed in connection with the issuance of Federated
Fund Class A Shares to Class A Shareholders of the William Penn Portfolio
as a result of the Reorganization. Further, William Penn fund group
shareholders who were invested as of November 30, 1988, will not be charged
a sales charge for future purchases made in any Federated fund structured
as a retail product, provided the account has remained open. Class A
Shares of the Federated Fund purchased with the proceeds of a redemption of
shares of an unaffiliated investment company purchased or redeemed with a
sales charge and not distributed by FSC may be charged a contingent
deferred sales charge of 0.50% for redemptions made within one full year of
purchase. Any such charge will be imposed on the lesser of the net asset
value of the redeemed shares at the time of purchase or redemption. The
contingent deferred sales charges are not imposed in connection with the
exercise of exchange rights, nor will they be imposed on redemptions of
Federated Fund Class A Shares received by shareholders of the William Penn
Portfolio as a result of the Reorganization. Sales of Class C Shares are
subject to a 1.00% contingent deferred sales charge on assets redeemed
within the first twelve months following purchase. For a complete
description of sales charges, contingent deferred sales charges and
exemptions from such charges, reference is hereby made to the Prospectus of
the Federated Fund dated February 28, 1997 and the Prospectus of the
William Penn Portfolio dated March 15, 1996, each of which is incorporated
herein by reference thereto.
Purchase, Exchange and Redemption Procedures
The transfer agent and dividend disbursing agent for the Federated
Fund is Federated Shareholder Services Company. The transfer agent and
dividend disbursing agent for the William Penn Portfolio is Penn Square
Management Corporation. Procedures for the purchase, exchange and
redemption of the Federated Fund's Class A Shares and Class C Shares differ
slightly from procedures applicable to the purchase, exchange and
redemption of the William Penn Portfolio's Class A Shares and Class C
Shares. Any questions about such procedures may be directed to, and
assistance in effecting purchases, exchanges or redemptions of the
Federated Fund's Class A Shares and Class C Shares or the William Penn
Portfolio's Class A Shares and Class C Shares may be obtained from FSC,
principal distributor for the Federated Fund, at 1-800-341-7400, or from
Penn Square Management Corporation, principal distributor for the William
Penn Portfolio, at 1-800-523-8440.
Reference is made to the Prospectus of the Federated Fund dated
February 28, 1997, and the Prospectus of the William Penn Portfolio dated
March 15, 1996, for a complete description of the purchase, exchange and
redemption procedures applicable to purchases, exchanges and redemptions of
Federated Fund and William Penn Portfolio shares, respectively, each of
which is incorporated herein by reference thereto. Set forth below is a
brief listing of the significant purchase, exchange and redemption
procedures applicable to the Federated Fund's Class A Shares and Class C
Shares and the William Penn Portfolio's Class A Shares and Class C Shares.
Purchases of Class A Shares and Class C Shares of the Federated
Fund may be made through a financial institution that has an agreement with
FSC or, once an account has been established, by wire or check. Purchases
of shares of the William Penn Portfolio may be made through Penn Square
Management Corporation and through certain broker-dealers under contract
with Penn Square Management Corporation or directly by wire or check once
an account has been established. The minimum initial investment in the
Federated Fund is $500 for Class A Shares and $1,500 for Class C Shares,
except for retirement accounts for which the minimum is $50. Subsequent
investments must be in amounts of at least $100, except for retirement
accounts for which the minimum is $50. The minimum initial investment in
the William Penn Portfolio is $500 for either Class of Shares, except for
retirement accounts for which the minimum is $250. Subsequent investments
must be in amounts of at least $100. The Federated Fund and the William
Penn Portfolio each reserves the right to reject any purchase request.
The purchase price of the Federated Fund's Class A Shares and the
William Penn Portfolio's Class A Shares is based on net asset value plus a
sales charge. The net asset value per share for each class of the
Federated Fund and the William Penn Portfolio is calculated as of the close
of trading (normally 4:00 p.m., Eastern time) on the New York Stock
Exchange, Inc. (the `NYSE'') on each day on which the Federated Fund and
the William Penn Portfolio compute their net asset value. Purchase and
redemption orders for the Federated Fund received from broker/dealers
before 5:00 p.m. (Eastern time) and from financial institutions before 4:00
p.m. (Eastern time) may be entered at that day's price. Purchase orders
for the William Penn Portfolio are executed based on the net asset value
calculated at the close of business on the day such purchase orders are
received. Purchase orders received after the close of the NYSE will be
executed based on the net asset value calculated on the next business day.
Redemption orders for shares of the William Penn Portfolio presented prior
to the close of the NYSE on any business day are redeemed at the net asset
value calculated at the close of the exchange that day, except that some
Class C Shares may be subject to a 1.00% contingent deferred sales charge.
Federated Fund purchase orders by wire are considered received upon receipt
of payment by wire. Federated Fund purchase orders received by check are
considered received after the check is converted into federal funds, which
normally occurs the business day after receipt.
Holders of Class A Shares and Class C Shares of the Federated Fund
have exchange privileges with respect to corresponding Class A Shares and
Class C Shares in certain of the funds for which affiliates of Federated
Investors serve as investment adviser or principal underwriter
(collectively, the "Federated Funds"), each of which has different
investment objectives and policies. Class A Shares and Class C Shares of
the Federated Fund may be exchanged for corresponding Class A Shares and
Class C Shares of certain Federated Funds at net asset value without a
contingent deferred sales charge. To the extent a shareholder exchanges
Class A Shares or Class C Shares of the Federated Fund for Class A Shares
or Class C Shares of other Federated Funds, the time for which the
exchanged-for shares are to be held will be added to the time for which
exchanged-from shares were held for purposes of satisfying the applicable
holding period for purposes of determining the contingent deferred sales
charge. Class A Shares to be exchanged must have a net asset value which
meets the minimum investment requirement for the fund into which the
exchange is being made. Holders of shares of the William Penn Portfolio
have exchange privileges with respect to shares in certain of the other
funds for which Penn Square Management Corporation serves as investment
manager (collectively, the `William Penn fund group''), each of which has
different investment objectives and policies. Any exchange for shares of
other funds in the William Penn fund group will generally be at the
respective net asset values next determined after receipt of the request
for exchange, provided the amount exchanged previously incurred a sales
charge. Exercise of the exchange privilege is treated as a sale for
federal income tax purposes and, accordingly, may have tax consequences for
the shareholder. Information on share exchanges may be obtained from the
Federated Fund or the William Penn Portfolio, as appropriate.
Redemptions of Federated Fund Class A Shares and Class C Shares may
be made through a financial institution, by telephone, by mailing a written
request or through the Federated Fund's systematic withdrawal program.
Redemptions of William Penn Portfolio shares may be made by presenting
share certificates, by letter form, by telephone, or through the William
Penn Portfolio's systematic withdrawal plan. Class C Shares of the
Federated Fund are redeemed at their net asset value, less any applicable
contingent deferred sales charge, next determined after the redemption
request is received. The William Penn Portfolio imposes no charges for
redemptions of Class A Shares. For Class C shares, redemptions within the
first year of purchase will bear a contingent deferred sales charge.
William Penn Portfolio Class C shareholders will have their current holding
period tacked into the period of time they hold their corresponding
Federated Class C Shares for purposes of determining any applicable
redemption charges. Redemptions may also be made through a broker/dealer,
and that broker/dealer may charge a transaction fee. Checks for redemption
proceeds will be mailed within three business days. However, redemption
checks will not be mailed until all checks in payment for the shares
redeemed have been cleared.
Dividends
Both the Federated Fund and the William Penn Portfolio pay
dividends monthly from net investment income and make annual distributions
of net realized capital gains, if any. With respect to both the Federated
Fund and the William Penn Portfolio, unless a shareholder otherwise
instructs, dividends and capital gain distributions will be reinvested
automatically in additional shares at net asset value, subject to no sales
charge.
Tax Consequences
As a condition to the Reorganization, the Federated Fund and the
Trust, on behalf of the William Penn Portfolio, will receive an opinion of
counsel that the Reorganization will be considered a tax-free
"reorganization" under applicable provisions of the Code so that no gain or
loss will be recognized by either the Federated Fund or the William Penn
Portfolio or the shareholders of the William Penn Portfolio. The tax basis
of the Federated Fund shares received by William Penn Portfolio
shareholders will be the same as the tax basis of their shares in the
William Penn Portfolio.
RISK FACTORS
As with other mutual funds that invest in investment grade bonds
and other fixed income securities, the Federated Fund is subject to market
risks. The prices of investment grade bonds and fixed-income securities
generally fluctuate inversely in relation to the direction of interest
rates. The prices of longer term securities fluctuate more widely in
response to market interest rate changes. Although some obligations issued
or guaranteed by agencies or instrumentalities of the U.S. Government, such
as GNMA participation certificates, are backed by the full faith and credit
of the U.S. Treasury, no assurances can be given that the U.S. Government
will provide financial support to other agencies or instrumentalities,
since it is not obligated to do so. Furthermore, there is no fixed
maturity to which the portfolio must adhere. Generally, the values of the
securities in which the Federated Fund will invest, and accordingly the
value of the Federated Fund's shares, will fall as interest rates rise and
rise as interest rates fall. Since the William Penn Portfolio also invests
primarily in investment grade bonds and other fixed income securities,
these risk factors are generally also present in an investment in the
William Penn Portfolio. A full discussion of the risks inherent in
investment in the Federated Fund and the William Penn Portfolio is set
forth in the Federated Fund's Prospectus and Statement of Additional
Information, each dated February 28, 1997, and the William Penn Portfolio's
Prospectus and Statement of Additional Information, each dated March 15,
1996, each of which is incorporated herein by reference thereto.
INFORMATION ABOUT THE REORGANIZATION
Background and Reasons for the Proposed Reorganization
Considerations of the Board of Trustees of the William Penn
Portfolio. On February 12, 1997, Penn Square Management Corporation
advised the Board of Trustees of the William Penn Portfolio that The
William Penn Company was considering redirecting its corporate strategy
away from the management and distribution of retail mutual funds and that
it was seeking a buyer for its core businesses. Moreover, Penn Square
Management Corporation engaged an investment banker to locate potential
buyers for the Corporation. The potential buyer would provide value-added
shareholder services, technological advancements, comprehensive
distribution networks, and diversified mutual fund product choices that
many larger mutual fund complexes offer. After conducting a screening
process, Penn Square Management Corporation determined that in its
judgment, the proposed Reorganization was the most desirable alternative
involving the William Penn Portfolio that was reasonably available and that
it should be presented to the William Penn Portfolio's Board of Trustees
for its consideration.
The independent trustees formed a four-person due diligence team.
The due diligence team visited the Federated Investors offices in
Pittsburgh, Pennsylvania, and reviewed with the portfolio manager of the
Federated Fund the investment style and philosophy used to manage the
assets of the Federated Fund. In addition, the due diligence team
inspected the Federated customer services area and the William Penn
Portfolio's independent counsel inspected the legal records of the
Federated Fund.
A meeting of the entire Board of Trustees was held on March 5,
1997, at which Federated Investors presented to the Board information
relating to the overall reputation, financial strength and stability of
Federated Investors, the parent company of Federated Advisers (together
with its affiliates, `Federated''). Federated, founded in 1955, is among
the seven largest mutual fund sponsors, with over $110 billion invested
across more than 300 funds under management and/or administration by its
subsidiaries, and over 2,000 employees. Federated's management discussed
the Federated Fund's investment performance history and explained to the
Board that the majority of this growth came from within Federated through
its multiple distribution channels. The Board was also informed of the
variety of investment products available through Federated, including
international funds and an array of domestic funds broader than currently
offered in the William Penn fund group, the exchange privileges that would
be available to former William Penn Portfolio shareholders if the
Reorganization is consummated, and the multiple sales charge (or `load'')
structures available to prospective shareholders. The Board took into
account that if the Reorganization takes place, shareholders of the William
Penn Portfolio would receive shares of the Federated Fund without the
imposition of any sales charge and without incurring any tax consequences.
Federated's management advised the Board of its reputation for
customer servicing, noting that it has received a #1 rating for five years
in a row by DALBAR, Inc. Federated's management stated that its
shareholder services include advanced technological systems that result in
quick shareholder access to a broad spectrum of information, including:
telephonic automated yield and performance information; consolidated
monthly shareholder statements; no-fee IRAs; quarterly newsletters; year-
end tax reporting information; direct deposit; and telephonic redemption
and exchange.
Federated's management also discussed comparative sales loads with
the Board. In particular, it was noted that the maximum front-end sales
load of the Class A Shares of the Federated Fund is lower than that of the
Class A Shares of the William Penn Portfolio. Federated's management also
reviewed with the Board relative asset size and expense ratios, including
relative advisory fees. The Board discussed the fact that the Federated
Fund is larger in asset size than the William Penn Portfolio and considered
potential economies of scale that might be experienced by former William
Penn Portfolio shareholders if they were to become shareholders of a larger
fund.
The Board determined that the investment objectives and policies of
the William Penn Portfolio were substantially similar to those of the
Federated Fund. The Board was also presented with and discussed materials
comparing the performance, and relative risks of the William Penn Portfolio
and the Federated Fund. Federated's management also presented biographical
information about each of the Directors of the Federated Fund and reviewed
with the Board the structure of its compliance and internal audit
departments and the scope of its training programs.
The Board noted that the William Penn Portfolio would not bear any
of the costs involved in the Reorganization, which would be borne entirely
by The William Penn Company and/or Federated. In addition, the Board
discussed the anticipated tax-free nature of the Reorganization to the
William Penn Portfolio and its shareholders.
In connection with their consideration of the Reorganization, the
Board also reviewed their fiduciary obligations under state and federal
law. They considered the requirements of Section 15(f) of the 1940 Act,
which provides that an investment manager to an investment company, and the
affiliates of such manager (such as Penn Square Management Corporation),
may receive an amount or benefit in connection with a sale of any interest
in such investment manager which results in an assignment of an investment
management contract if (1) for a period of three years after such
assignment, at least 75% of the Board of Trustees of the investment company
are not `interested persons'' (as defined in the 1940 Act) of the new
investment manager or its predecessor; and (2) no `unfair burden'' (as
defined in the 1940 Act) is imposed on the investment company as a result
of the assignment or any express or implied terms, conditions or
understandings applicable thereto.
With respect to the first condition of Section 15(f) relating to
Board composition, the Board was advised that the Federated Fund's Board of
Trustees presently consists of thirteen (13) Directors, only three (3) of
whom are `interested persons.'' With respect to the second condition of
Section 15(f), while there is no specific definition of `unfair burden,''
it includes any arrangement, for two years after the transaction, pursuant
to which the predecessor or successor adviser is entitled to receive
compensation from any person in connection with the mutual fund's purchase
or sale of securities, other than bona fide ordinary compensation as
principal underwriter. The definition of unfair burden also includes any
payments from the fund for other than bona fide investment advisory or
other services. The Board considered the fact that representations were
made by Federated and Penn Square Management Corporation that the agreement
between Federated and The William Penn Company would contain
representations and covenants that the Reorganization would not impose an
unfair burden on the Penn Square Group.
After reviewing and considering all of the information provided by
Federated and Penn Square Management Corporation, including the terms of
the Reorganization, the Board, including all of the Trustees who are not
interested persons of the William Penn Portfolio or Penn Square Management
Corporation, voted unanimously in person at the meeting held on March 5,
1997, to approve the Reorganization and to recommend it to the shareholders
of the William Penn Portfolio for their approval.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
REORGANIZATION.
Considerations of the Board of Directors of the Federated Fund.
The Board of Directors of the Federated Fund, including the independent
Directors, have unanimously concluded that consummation of the
Reorganization is in the best interests of the Federated Fund and the
shareholders of the Federated Fund and that the interests of Federated Fund
shareholders would not be diluted as a result of effecting the
Reorganization and have unanimously voted to approve the Plan.
Agreement Among William Penn fund group Shareholders, The William Penn
Company and Federated
The Reorganization is being proposed as part of an agreement
between Federated, The William Penn Company and the William Penn fund group
Shareholders, pursuant to which the shareholders of The William Penn
Company would be compensated for selling to Federated their capital stock
and cooperating in facilitating the transaction contemplated by the
agreement.
Description of the Plan of Reorganization
The Plan provides that the Federated Fund will acquire all of the
assets of the William Penn Portfolio in exchange for the Federated Fund's
Class A Shares and Class C Shares to be distributed pro rata by the William
Penn Portfolio to its Class A and Class C shareholders respectively in
complete liquidation of the William Penn Portfolio on or about [
] (the "Closing Date"). Shareholders of the William Penn Portfolio
will become shareholders of the Federated Fund as of the close of business
on the Closing Date, and will be entitled to the Federated Fund's next
dividend distribution.
As of or prior to the Closing Date, the William Penn Portfolio will
declare and pay a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to its shareholders
all taxable income for the period ending on the Closing Date. In addition,
the William Penn Portfolio's dividend will include its net capital gains
realized in the period ending on the Closing Date.
Consummation of the Reorganization is subject to the conditions set
forth in the Plan, including receipt of an opinion in form and substance
satisfactory to the William Penn Portfolio and the Federated Fund, as
described under the caption "Federal Income Tax Consequences" below. The
Plan may be terminated and the Reorganization may be abandoned at any time
before or after approval by shareholders of the William Penn Portfolio
prior to the Closing Date if a majority of the independent board members of
either board reasonably believes that continuing the transaction would have
a material adverse impact on shareholders of that fund.
Federated Advisers is responsible for the payment of substantially
all of the expenses of the Reorganization incurred by either party, whether
or not the Reorganization is consummated. Such expenses include, but are
not limited to, registration fees, transfer taxes (if any), and the costs
of preparing, printing, copying and mailing proxy solicitation materials to
the William Penn Portfolio shareholders. Penn Square Management
Corporation is responsible for the payment of the legal and accounting fees
of the William Penn Portfolio.
The foregoing description of the Plan entered into between the
Federated Fund and the William Penn Portfolio is qualified in its entirety
by the terms and provisions of the Plan, a copy of which is attached hereto
as Exhibit A and incorporated herein by reference thereto.
Description of Federated Fund Shares
Full and fractional Class A Shares and Class C Shares of the
Federated Fund will be issued without the imposition of a sales charge or
other fee to the corresponding shareholders of the William Penn Portfolio
in accordance with the procedures described above. Class A Shares and
Class C Shares of the Federated Fund to be issued to shareholders of the
William Penn Portfolio under the Plan will be fully paid and nonassessable
when issued and transferable without restriction and will have no
preemptive or conversion rights. Reference is hereby made to the
Prospectus of the Federated Fund dated February 28, 1997, provided herewith
for additional information about Class A Shares and Class C Shares of the
Federated Fund.
Federal Income Tax Consequences
As a condition to the Reorganization, the Corporation, on behalf of
the Federated Fund, and the Trust, on behalf of the William Penn Portfolio,
will receive an opinion from Dickstein Shapiro Morin & Oshinsky LLP,
counsel to the Federated Fund, to the effect that, on the basis of the
existing provisions of the Code, current administrative rules and court
decisions, for federal income tax purposes: (1) the Reorganization as set
forth in the Plan will constitute a tax-free reorganization under Section
368(a)(1)(C) of the Code; (2) no gain or loss will be recognized by the
Federated Fund upon its receipt of the William Penn Portfolio's assets
solely in exchange for Federated Fund Class A Shares and Class C Shares and
the assumption of certain stated liabilities; (3) no gain or loss will be
recognized by the William Penn Portfolio upon the transfer of its assets to
the Federated Fund in exchange for Federated Fund Class A Shares and Class
C Shares and the assumption of certain stated liabilities or upon the
distribution (whether actual or constructive) of the Federated Fund Class A
Shares and Class C Shares to the William Penn Portfolio shareholders in
exchange for their respective shares of the William Penn Portfolio; (4) no
gain or loss will be recognized by shareholders of the William Penn
Portfolio upon the exchange of their William Penn Portfolio shares for
Federated Fund Class A Shares and Class C Shares; (5) the tax basis of the
William Penn Portfolio's assets acquired by the Federated Fund will be the
same as the tax basis of such assets to the William Penn Portfolio
immediately prior to the Reorganization; (6) the tax basis of Federated
Fund Class A Shares and Class C Shares received by each shareholder of the
William Penn Portfolio pursuant to the Plan will be the same as the tax
basis of William Penn Portfolio shares held by such shareholder immediately
prior to the Reorganization; (7) the holding period of the assets of the
William Penn Portfolio in the hands of the Federated Fund will include the
period during which those assets were held by the William Penn Portfolio;
and (8) the holding period of Federated Fund Class A Shares and Class C
Shares received by each shareholder of the William Penn Portfolio will
include the period during which the William Penn Portfolio shares exchanged
therefor were held by such shareholder, provided the William Penn Portfolio
shares were held as capital assets on the date of the Reorganization.
Shareholders should recognize that an opinion of counsel is not
binding on the Internal Revenue Service (`IRS'') or any court. The
William Penn Portfolio does not expect to obtain a ruling from the IRS
regarding the consequences of the Reorganization. Accordingly, if the IRS
sought to challenge the tax treatment of the Reorganization and was
successful, neither of which is anticipated, the Reorganization would be
treated as a taxable sale of assets of the William Penn Portfolio, followed
by the taxable liquidation of the William Penn Portfolio.
Comparative Information on Shareholder Rights and Obligations
General. Both the Federated Fund and the William Penn Portfolio
are open-end, diversified management investment companies registered under
the 1940 Act, which continuously offer to sell shares at their current net
asset value. The Federated Fund is organized as a corporation under the
laws of the State of Maryland and is governed by its Articles of
Incorporation, By-Laws and Board of Trustees, in addition to applicable
state and federal law. The William Penn Portfolio is organized as a
separate series of William Penn Interest Income Fund as a common law trust
under the laws of the Commonwealth of Pennsylvania and is governed by its
Declaration of Trust and Board of Trustees, in addition to applicable state
and federal law. Set forth below is a brief summary of the significant
rights of shareholders of the Federated Fund and the William Penn
Portfolio.
Shares of the Federated Fund and the William Penn Portfolio. The
Federated Fund is authorized to issue 2,000,000,000 shares of common stock,
par value $0.0001 per share. The Board of Directors has established Class
A Shares, Class B Shares, Class C Shares, and Class F Shares of the
Federated Fund. The William Penn Portfolio is authorized to issue an
unlimited number of shares of beneficial interest which have no par value.
The William Penn Portfolio is currently one of five investment portfolios
of William Penn Interest Income Fund and has Class A Shares and Class C
Shares outstanding. Issued and outstanding shares of both the Federated
Fund and William Penn Portfolio are fully paid and nonassessable, and
freely transferable.
Voting Rights. Neither the Federated Fund nor the William Penn
Portfolio is required to hold annual meetings of shareholders, except as
required under the 1940 Act. Shareholder approval is necessary only for
certain changes in operations or the election of directors under certain
circumstances. The Federated Fund requires that a special meeting of
shareholders be called for any permissible purpose upon the written request
of the holders of at least 10% of the outstanding shares of the series of
the Federated Fund entitled to vote. A special meeting of the shareholders
of the William Penn Portfolio is required to be called upon the written
request of shareholders representing not less than 30% of the issued and
outstanding shares entitled to vote. Each share of the Federated Fund and
the William Penn Portfolio gives the shareholder one vote in director
elections and other matters submitted to shareholders for vote. All shares
of each series or class in the Federated Fund and the William Penn
Portfolio have equal voting rights except that in matters affecting only a
particular series or class, only shares of that series or class are
entitled to vote.
Directors. The By-Laws of the Federated Fund provide that the term
of office of each Director shall be until his or her resignation or removal
or until the annual meeting next held after his or her election or until
election and qualification of his or her successor. A Director of the
Federated Fund may be removed by a vote of a majority of all shares
outstanding and entitled to vote at any special meeting of shareholders,
and such shareholders may elect a Director to replace the Director so
removed to serve for the remainder of the term and until the election and
qualification of his or her successor. A vacancy on the Board may be
filled by the action of a majority of the Directors remaining in office,
and such elected Director shall hold office until the next annual meeting
of shareholders or until his or her successor is duly elected and
qualifies. The Declaration of Trust of the William Penn Portfolio provides
that each Trustee appointed or elected in accordance with the Declaration
of Trust serves until their successors have been elected and qualified,
unless they resign or are removed. Regarding the William Penn Portfolio, a
majority of the Trustees may accept the written resignation of another
Trustee or may remove him or her from office by written notice to him and
to the custodian. In addition, the holders of record of not less than two-
thirds of the outstanding shares of the Portfolio may have a Trustee
removed by filing a declaration with the custodian or by a vote at a
meeting called for such purpose. The Trustees shall promptly call a
meeting of shareholders for the purpose of voting upon removal of such
Trustee(s) when requested in writing by holders of at least 10% of the
Portfolio's outstanding shares. Pending the filling of any vacancy or
vacancies caused by death, resignation, or removal, the remaining Trustee
or Trustees shall have all the powers and duties of the whole number of
Trustees. If a vacancy occurs in the office of a Trustee for any reason,
including an increase in the number of Trustees, the other Trustees shall
by written notice delivered to the custodian appoint a Trustee to fill the
vacancy and will promptly notify the shareholders that they have done so,
subject to the provisions of Section 16(a) of the 1940 Act. The agreement
to be entered into with the custodian will provide that, if at any time the
custodian decides that there is no Trustee available or able to serve, it
will call a meeting of the shareholders to elect at least three (3)
Trustees. With respect to the Federated Fund, a meeting of shareholders
will be required for the purpose of electing additional Directors whenever
fewer than a majority of the Directors then in office were elected by
shareholders.
Liability of Directors and Officers. Under the Articles of
Incorporation of the Federated Fund, a Director or officer will be
personally liable only for his or her own willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. The Articles of Incorporation further
provide that Directors and officers will be indemnified by the Federated
Fund against reasonable costs and expenses incurred in connection with any
claim or litigation unless the person's conduct is determined to constitute
willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of the person's office. The Declaration
of Trust for the William Penn Portfolio contains a provision eliminating
personal liability of the Trustees. Claimants must look only to the assets
of the portfolio for payment or satisfaction of claims. Trustees of the
Portfolio are not protected from liability by reason of willful misconduct,
bad faith, recklessness, or gross negligence in the performance of his
duties as Trustee. Further, the
Trustees have the power to indemnify the officers and employees of
the Portfolio against reasonable liabilities and expenses unless incurred
in bad faith or reckless disregard of his duties, or with willful
misconduct or gross negligence. In addition, due to the provisions of the
1940 Act, shareholders would still have the right to pursue monetary claims
against directors or officers for acts involving willful malfeasance, bad
faith, gross negligence or reckless disregard of their duties as directors
or officers.
Termination or Liquidation. In the event of the termination or
liquidation of the Federated Fund or any series or class of the Federated
Fund or of the termination or liquidation of the William Penn Portfolio,
the shareholders of the respective fund or class are entitled to receive,
when and as declared by its Directors or Trustees, the excess of the assets
belonging to the respective fund or class over the liabilities belonging to
the respective fund or class. In either case, the assets belonging to the
fund or class will be distributed among the shareholders in proportion to
the number of shares of the respective fund or class held by them.
Capitalization
The following table sets forth the unaudited capitalization of
the Class A Shares and Class C Shares of the Federated Fund and the shares
of the William Penn Portfolio as of February 28, 1997, and on a pro forma
combined basis as of that date:
Class A Shares Pro Forma
Federated Fund William Penn Portfolio Combined
Net Assets $47,631,805 $29,722,680 $77,354,575
Net Asset Value
Per Share $9.72 $10.45 $9.72
Shares Outstanding4,898,561 2,842,988 7,955,302
Class C Shares Pro Forma
Federated Fund William Penn Portfolio Combined
Net Assets $26,965,314 $705,989 $27,671,303
Net Asset Value
Per Share $9.72 $10.44 $9.72
Shares Outstanding2,773,131 67,649 2,845,735
INFORMATION ABOUT THE FEDERATED FUND
AND THE WILLIAM PENN PORTFOLIO
Federated Bond Fund
Information about the Federated Fund is contained in the Federated
Fund's current Prospectus dated February 28, 1997, a copy of which is
included herewith and incorporated herein by reference. Additional
information about the Federated Fund is included in the Federated Fund's
Annual Report to Shareholders dated October 31, 1996, the Statement of
Additional Information dated February 28, 1997, and the Statement of
Additional Information dated [ ] (relating to this
Prospectus/Proxy Statement), each of which is incorporated herein by
reference. Copies of the Annual Report and Statements of Additional
Information, which have been filed with the Securities and Exchange
Commission (the "SEC"), may be obtained upon request and without charge by
contacting the Federated Fund at 1-800-341-7400, or by writing the
Federated Fund at Federated Investors Tower, Pittsburgh, PA 15222-3779.
The Federated Fund is subject to the informational requirements of the
Securities Act of 1933, as amended (the `1933 Act''), the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements, charter documents and other
information filed by the Federated Fund can be obtained by calling or
writing the Federated Fund and can also be inspected and copied by the
public at the public reference facilities maintained by the SEC in
Washington, DC located at Room 1024, 450 Fifth Street, N.W., Washington, DC
20549 and at certain of its regional offices located at Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661 and
13th Floor, Seven World Trade Center, New York, NY 10048. Copies of such
material can be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, SEC, 450 Fifth Street, N.W.,
Washington, DC 20549 at prescribed rates or electronically at Internet Web
Site (www.sec.gov).
This Prospectus/Proxy Statement, which constitutes part of a
Registration Statement filed by the Federated Fund with the SEC under the
1933 Act, omits certain of the information contained in the Registration
Statement. Reference is hereby made to the Registration Statement and to
the exhibits thereto for further information with respect to the Federated
Fund and the shares offered hereby. Statements contained herein concerning
the provisions of documents are necessarily summaries of such documents,
and each such statement is qualified in its entirety by reference to the
copy of the applicable document filed with the SEC.
William Penn Interest Income Fund, Quality Income Portfolio
Information about the William Penn Interest Income Fund, Quality
Income Portfolio is contained in the William Penn Portfolio's current
Prospectus dated March 15, 1996, the Annual Report to Shareholders dated
December 31, 1996, the Statement of Additional Information dated March 15,
1996, and the Statement of Additional Information dated [ ]
(relating to this Prospectus/Proxy Statement), each of which is
incorporated herein by reference. Copies of such Prospectus, Annual
Report, Semi-Annual Report, and Statements of Additional Information, which
have been filed with the SEC, may be obtained upon request and without
charge from the William Penn Portfolio by calling 1-800-523-8440 or by
writing to the William Penn Portfolio at 2650 Westview Drive, Wyomissing,
PA 19610. The William Penn Portfolio is subject to the informational
requirements of the 1933 Act, the 1934 Act and the 1940 Act and in
accordance therewith files reports and other information with the SEC.
Reports, proxy and information statements, charter documents and other
information filed by William Penn Interest Income Fund or its portfolio,
the William Penn Portfolio, can be obtained by calling or writing the
William Penn Portfolio and can also be inspected at the public reference
facilities maintained by the SEC or obtained at prescribed rates at the
addresses listed in the previous section.
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Trustees of the William Penn Portfolio of
proxies for use at the Special Meeting of Shareholders (the "Special
Meeting") to be held at 9:00 a.m. (general meeting) and 10:00 a.m. (Fund
meeting) (local time) on May 29, 1997 at: Sheraton Berkshire Motor Inn,
1741 Paper Mill Road, Wyomissing, PA 19610, and at any adjournments
thereof. The proxy confers discretionary authority on the persons
designated therein to vote on other business not currently contemplated
which may properly come before the Special Meeting. A proxy, if properly
executed, duly returned and not revoked, will be voted in accordance with
the specifications thereon; if no instructions are given, such proxy will
be voted in favor of the Plan. A shareholder may revoke a proxy at any
time prior to use by filing with the Secretary of the William Penn
Portfolio an instrument revoking the proxy, by submitting a proxy bearing a
later date or by attending and voting at the Special Meeting. Proxies,
instruments revoking a proxy, or proxies bearing a later date may be
communicated by telephone, by electronic means including facsimile, or by
mail.
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by Federated Advisers. In addition to
solicitations through the mails, proxies may be solicited by officers,
employees and agents, including third party solicitors, of the William Penn
Portfolio, Federated Advisers and their respective affiliates at no
additional cost to the William Penn Portfolio. Such solicitations may be
by telephone, telegraph, or personal contact. Any telephonic solicitations
will follow procedures designed to insure accuracy and prevent fraud
including requiring identifying shareholder information, and recording the
shareholder's instructions. 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 instructions as currently
exists for instructions communicated in written form. Federated Advisers
will 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.
Outstanding Shares and Voting Requirements
The Board of Trustees of the William Penn Portfolio has fixed the
close of business on [ ], as the record date for the
determination of shareholders entitled to notice of and to vote at the
Special Meeting and any adjournments thereof. As of the record date, there
were [ ] Class A Shares and [ ] Class C Shares of the William
Penn Portfolio outstanding. Each of the William Penn Portfolio's shares is
entitled to one vote and fractional shares have proportionate voting
rights. On the record date, the Trustees and Officers of the William Penn
Portfolio as a group owned less than [ ] of the outstanding shares of
the William Penn Portfolio. To the best knowledge of Penn Square
Management Corporation, as of the record date, no person owned beneficially
or of record 5% or more of the William Penn Portfolio's outstanding shares.
As of the record date, there were [ ] Class A Shares, and
[ ] Class C Shares of the Federated Fund outstanding. On the
record date, the Directors and officers of the Federated Fund as a group
owned less than 1% of the outstanding Class A Shares, and Class C Shares of
the Federated Fund. To the best knowledge of Federated Advisers, as of the
record date, no person, except as set forth in the table below, owned
beneficially or of record 5% or more of the Federated Fund's outstanding
Class A, or Class C Shares.
NAME AND ADDRESS SHARES OWNED PERCENT OF
OUTSTANDING SHARES
Approval of the Plan requires the affirmative vote of a majority of
the outstanding shares of the William Penn Portfolio. The votes of
shareholders of the Federated Fund are not being solicited since their
approval is not required in order to effect the Reorganization.
One-third of the issued and outstanding shares of the William Penn
Portfolio, represented in person or by proxy, will be required to
constitute a quorum at the Special Meeting for the purpose of voting on the
proposed Reorganization. For purposes of determining the presence of a
quorum, shares represented by abstentions and "broker non-votes" will be
counted as present, but not as votes cast, at the Special Meeting. Because
approval of the Reorganization requires the approval of a majority of the
outstanding shares of the William Penn Portfolio, abstentions and "broker
non-votes" will have the same effect as if they were votes against the
Reorganization.
Dissenter's Right of Appraisal
Shareholders of the William Penn Portfolio objecting to the
Reorganization have no appraisal rights under the William Penn Portfolio's
Declaration of Trust or Pennsylvania law. Under the Plan, if approved by
William Penn Portfolio shareholders, each shareholder will become the owner
of Class A Shares and Class C Shares of the Federated Fund having a total
net asset value equal to the total net asset value of his or her holdings
in the William Penn Portfolio's Class A or Class C Shares, respectively, at
the Closing Date.
OTHER MATTERS AND DISCRETION OF PERSONS NAMED IN THE PROXY
Management of the William Penn Portfolio knows of no other matters
that may properly be, or which are likely to be, brought before the Special
Meeting. However, if any other business shall properly come before the
Special Meeting, the persons named in the proxy intend to vote thereon in
accordance with their best judgment.
If at the time any session of the Special Meeting is called to
order, a quorum is not present in person or by proxy, the persons named as
proxies may vote those proxies which have been received to adjourn the
Special Meeting to a later date. In the event that a quorum is present but
sufficient votes in favor of one or more of the proposals have not been
received, the persons named as proxies may propose one or more adjournments
of the Special Meeting to permit further solicitation of proxies with
respect to any such proposal. All such adjournments will require the
affirmative vote of a majority of the shares present in person or by proxy
at the session of the Special Meeting to be adjourned. The persons named
as proxies will vote those proxies which they are entitled to vote in favor
of the proposal, in favor of such an adjournment, and will vote those
proxies required to be voted against the proposal, against any such
adjournment.
Whether or not shareholders expect to attend the Special Meeting,
all shareholders are urged to sign, fill in and return the enclosed proxy
form promptly.
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated , 1997 (the
--------
"Agreement"), between INVESTMENT SERIES FUNDS, INC., a Maryland Corporation
(the `Corporation'') on behalf of its portfolio FEDERATED BOND FUND
(hereinafter called the "Acquiring Fund"), and WILLIAM PENN INTEREST INCOME
FUND, a Pennsylvania Common Law Trust (hereinafter called the "Trust") on
behalf of its portfolio QUALITY INCOME PORTFOLIO (hereinafter called the
"Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C)
of the United States Internal Revenue Code of 1986, as amended (the
"Code"). The reorganization (the "Reorganization") will consist of the
transfer of all the assets and the assumption of certain liabilities of the
Acquired Fund in exchange solely for Class A Shares and Class C Shares of
the Acquiring Fund (the "Acquiring Fund Shares") and the distribution,
after the Closing Date (as hereinafter defined), of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Trust and the Corporation are registered open-end
management investment companies and the Acquired Fund owns securities in
which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the
directors who are not "interested persons" (as defined under the Investment
Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund
has determined that the transfer of all of the assets and the assumption of
certain liabilities of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the
trustees who are not "interested persons" (as defined under the 1940 Act),
of the Trust has determined that the transfer of all of the assets and the
assumption of certain liabilities of the Acquired Fund for Acquiring Fund
Shares is in the best interests of the Acquired Fund shareholders;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1.TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund
all of the assets of the Acquired Fund, including all securities and cash,
other than cash in an amount necessary to pay any unpaid dividends and
distributions as provided in paragraph 1.5, beneficially owned by the
Acquired Fund, and the Acquiring Fund agrees in exchange therefor to
deliver to the Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3.
Such transaction shall take place at the closing (the "Closing") on the
closing date (the "Closing Date") provided for in paragraph 3.1. In lieu
of delivering certificates for the Acquiring Fund Shares, the Acquiring
Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account,
for the benefit of its shareholders, on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the shareholders
of the Acquired Fund.
1.2 The Acquiring Fund will assume only those certain liabilities
which are set forth in a certificate to be provided by the Acquired Fund at
Closing and accepted by the Acquiring Fund.
1.3 Delivery of the assets of the Acquired Fund to be transferred
shall be made on the Closing Date and shall be delivered to State Street
Bank and Trust Company (hereinafter called "State Street"), Boston,
Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the
account of the Acquiring Fund, together with proper instructions and all
necessary documents to transfer to the account of the Acquiring Fund, free
and clear of all liens, encumbrances, rights, restrictions and claims
created by the Acquired Fund. All cash delivered shall be in the form of
immediately available funds payable to the order of the Custodian for the
account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring
Fund any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund thereunder. The
Acquired Fund will transfer to the Acquiring Fund any distributions, rights
or other assets received by the Acquired Fund after the Closing Date as
distributions on or with respect to the securities transferred. Such
assets shall be deemed included in assets transferred to the Acquiring Fund
on the Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable,
the Acquired Fund will liquidate and distribute pro rata to the Acquired
Fund's shareholders of record, determined as of the close of business on
the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund
Shares received by the Acquired Fund pursuant to paragraph 1.1. In
addition, each Acquired Fund Shareholder shall have the right to receive
any unpaid dividends or other distributions which were declared before the
Valuation Date (as hereinafter defined) with respect to the shares of the
Acquired Fund that are held by the shareholder on the Valuation Date. Such
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund to open accounts on the share record books
of the Acquiring Fund in the names of the Acquired Fund Shareholders, and
representing the respective pro rata number of the Acquiring Fund Shares
due such shareholders, based on their ownership of shares of the Acquired
Fund on the Closing Date. All issued and outstanding Shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund shall not
issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's current prospectus
and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund
shares on the books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Trust up to and including the Closing Date
and such later dates, with respect to dissolution and deregistration of the
Trust, on which the Trust is dissolved and deregistered.
1.9 The Trust shall be deregistered as an investment company under
the 1940 Act and dissolved as a Pennsylvania common law trust as promptly
as practicable following the Closing Date and the making of all
distributions pursuant to paragraph 1.5.
2.VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of
the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on the Closing Date (such time and date being herein called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's
then-current prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net
asset value per share computed as of the close of the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on the Valuation Date, using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the Acquired
Fund determined using the same valuation procedures referred to in
paragraph 2.1, by the net asset value of one Acquiring Fund Share
determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund, which practices have been reviewed
by the Acquired Fund's Board of Trustees.
3.CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be [ ] or such later date as
the parties may mutually agree. All acts taking place at the Closing shall
be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held at
4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated
Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place
as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading or
the reporting of trading shall be disrupted so that accurate appraisal of
the value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
3.3 Penn Square Management Corporation, as transfer agent for the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the
Acquired Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to
the Secretary of the Acquired Fund, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, assumption agreements, share certificates, if any, receipts or
other documents as such other party or its counsel may reasonably request.
4.REPRESENTATIONS AND WARRANTIES.
4.1 The Trust represents and warrants to the Acquiring Fund as
follows:
(a) The Trust is a Common Law Trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has power to own all of its properties and assets and to
carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as an open-
end, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Trust is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Trust's Declaration of Trust or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquired Fund is a party
or by which it is bound.
(d) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will result in
liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings, and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired
Fund at December 31, 1995 and at December 31, 1996 has been audited by
Ernst & Young LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Acquired Fund
as of such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) Since December 31, 1996, there has not been any
material adverse change in the Acquired Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business.
(i) At the Closing Date, all federal and other tax returns
and reports of the Acquired Fund required by law to have been filed by such
date shall have been filed or an appropriate extension obtained, and all
federal and other taxes shall have been paid so far as due, or provision
shall have been made for the payment thereof or contest in good faith, and
to the best of the Acquired Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. All of the issued and
outstanding shares of the Acquired Fund will, at the time of the Closing,
be held by the persons and in the amounts set forth in the records of the
transfer agent as provided in paragraph 3.3. The Acquired Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full
right, power and authority to sell, assign, transfer and deliver the assets
to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Trust and, subject to the approval of
the Acquired Fund Shareholders, this Agreement constitutes the valid and
legally binding obligation of the Acquired Fund enforceable in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund
(the "Prospectus/Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.5 (only insofar as it relates to the
Acquired Fund) will, on the effective date of the Registration Statement
and on the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which such statements were made, not misleading.
4.2 The Corporation represents and warrants to the Trust as follows:
(a) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Maryland and has the power to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) The Corporation is registered under the 1940 Act as an
open-end, diversified, management investment company, and such registration
has not been revoked or rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery
and performance of this Agreement will not result, in material violation of
the Corporation's Articles of Incorporation or Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings, and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) The Statements of Assets and Liabilities of the
Acquiring Fund at October 31, 1995 and 1996, have been audited by Ernst &
Young LLP, independent auditors, and have been prepared in accordance with
generally accepted accounting principles, and such statements (copies of
which have been furnished to the Acquired Fund) fairly reflect the
financial condition of the Acquiring Fund as of such dates, and there are
no known contingent liabilities of the Acquiring Fund as of such dates not
disclosed therein.
(g) Since October 31, 1996, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business.
(h) At the Closing Date, all federal and other tax returns
and reports of the Acquiring Fund required by law to have been filed or an
appropriate extension obtained, by such date shall have been filed, and all
federal and other taxes shall have been paid so far as due, or provision
shall have been made for the payment thereof or contest in good faith, and
to the best of the Acquiring Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns.
(i) For each fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company.
(j) All issued and outstanding Acquiring Fund Shares are,
and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares, except for Class B
Shares which are convertible to Class A Shares eight years after purchase.
(k) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the part of
the Corporation, and this Agreement constitutes the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and court decisions with respect
thereto, and to general principles of equity and the discretion of the
court (regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring Fund)
will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading.
5.COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 The Trust will call a meeting of the Acquired Fund Shareholders
to consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement.
5.4 As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund,
in such form as is reasonably satisfactory to the Acquiring Fund, a
statement of the earnings and profits of the Acquired Fund for federal
income tax purposes which will be carried over to the Acquiring Fund as a
result of Section 381 of the Code and which will be certified by the
Trust's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of the
Prospectus/Proxy Statement, referred to in paragraph 4.1(o), all to be
included in a Registration Statement on Form N-14 of the Acquiring Fund
(the "Registration Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934, as amended, and the 1940 Act in connection
with the meeting of the Acquired Fund Shareholders to consider approval of
this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and the 1940 Act
as it may deem appropriate in order to continue its operations after the
Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have
declared a dividend or dividends, with a record date and ex-dividend date
prior to the Valuation Date, which, together with all previous dividends,
shall have the effect of distributing to its shareholders all of its
investment company taxable income, if any, plus the excess of its interest
income, if any, excludable from gross income under Section 103(a) of the
Code over its deductions disallowed under Sections 265 and 171(a)(2) of the
Code for the taxable periods or years ended on or before December 31, 1996
and for the period from said date to and including the Closing Date
(computed without regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized in taxable periods or years ended on
or before December 31, 1996 and in the period from said date to and
including the Closing Date.
6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquired Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of the Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date.
6.2 The Trust shall have delivered to the Acquiring Fund a statement
of the Acquired Fund's assets, together with a list of the Acquired Fund's
portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified
by the Treasurer of the Trust.
6.3 The Trust shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the
Acquiring Fund, to the effect that the representations and warranties of
the Trust made in this Agreement are true and correct in all material
respects at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
6.4 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate specifying the liabilities which are to be assumed by the
Acquiring Fund, all of which shall be reflected in the net asset value of
the Acquired Fund on the Closing Date, which liabilities shall be
acceptable to the Acquiring Fund in its sole discretion.
7.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Corporation contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
7.2 The Corporation shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the
Acquired Fund, to the effect that the representations and warranties of the
Corporation made in this Agreement are true and correct in all material
respects at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business since
the date hereof other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of any indebtedness,
except as otherwise disclosed to and accepted by the Acquired Fund.
8.FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund,
either party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the
Trust's Articles of Incorporation and the 1940 Act.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Acquired
Fund, provided that either party hereto may for itself waive any of such
conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act.
8.5 The Corporation and the Trust shall have received an opinion of
Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets and the
assumption of certain liabilities in exchange for the Acquiring Fund Shares
and the distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares and the assumption of certain liabilities; (c) No
gain or loss will be recognized by the Acquired Fund upon the transfer of
the Acquired Fund assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption of certain liabilities or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares
to Acquired Fund Shareholders in exchange for their shares of the Acquired
Fund; (d) No gain or loss will be recognized by the Acquired Fund
Shareholders upon the exchange of their Acquired Fund shares for the
Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the same
as the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Acquired Fund; and
(h) The holding period of the Acquiring Fund Shares to be received by each
Acquired Fund Shareholder will include the period during which the Acquired
Fund shares exchanged therefor were held by such shareholder (provided the
Acquired Fund shares were held as capital assets on the date of the
Reorganization).
9.TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of the
Trust or the Board of Directors of the Corporation at any time prior to the
Closing Date (and notwithstanding any vote of the Acquired Fund
Shareholders) if a majority of the independent board members of either
board reasonably believes that continuing the transaction would have a
material adverse impact on shareholders of that fund.
9.2 If this Agreement is terminated and the exchange contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this
Agreement shall become void and have no effect, without any liability on
the part of any party hereto or the directors or officers of the Trust or
the Corporation or the shareholders of the Acquiring Fund or of the
Acquired Fund, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing
conditions may be waived by the Board of Directors of the Corporation or
the Board of Trustees of the Trust, if, in the judgment of either, such
waiver will not have a material adverse effect on the benefits intended
under this Agreement to the shareholders of the Acquiring Fund or of the
Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided
for herein shall survive consummation of the transactions contemplated
hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements and understandings
of every kind and nature between them relating to the subject matter
hereof. Neither party shall be bound by any condition, definition,
warranty or representation, other than as set forth or provided in this
Agreement or as may be set forth in a later writing signed by the party to
be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with
the internal laws of the Commonwealth of Pennsylvania, without giving
effect to principles of conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be an
original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
11.6 An agreement has been entered into under which Federated Advisers
will assume substantially all of the expenses of the Reorganization
including registration fees, transfer taxes (if any), the fees of banks and
transfer agents and the costs of preparing, printing, copying and mailing
proxy solicitation materials to the Acquired Fund Shareholders and the
costs of holding the special meeting of shareholders. Penn Square
Management Corporation will assume the legal and accounting fees of the
Acquired Fund.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have
each caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
WILLIAM PENN INTEREST INCOME FUND,
on behalf of its portfolio,
Attest: QUALITY INCOME PORTFOLIO
By:
Name: Name:
Title: Title:
Acquiring Fund:
Attest: INVESTMENT SERIES FUNDS, INC.
On behalf of its portfolio.
FEDERATED BOND FUND
By:
Name: S. Elliott Cohan Name: J. Christopher Donahue
Title:Assistant Secretary Title: President
STATEMENT OF ADDITIONAL INFORMATION
[ ]
Acquisition of the Assets of
QUALITY INCOME PORTFOLIO,
a Portfolio of
WILLIAM PENN INTEREST INCOME FUND
2650 Westview Drive
Wyomissing, Pennsylvania 19610
Telephone Number: 1-800-523-8440
By and in exchange for Class A and Class C Shares respectively of
FEDERATED BOND FUND,
a portfolio of
INVESTMENT SERIES FUNDS, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Telephone Number: 1-800-341-7400
This Statement of Additional Information dated [ ] is not a
prospectus. A Prospectus/Proxy Statement dated [ ] related to the
above-referenced matter may be obtained from Federated Bond Fund, a
Portfolio of Investment Series Funds, Inc., Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. This Statement of Additional
Information should be read in conjunction with such Prospectus/Proxy
Statement.
TABLE OF CONTENTS
1. Statement of Additional Information of Federated Bond Fund, dated
February 28, 1997.
2. Statement of Additional Information of Quality Income Portfolio, a
portfolio of William Penn Interest Income Fund, dated March 15, 1996.
3. Audited Financial Statements of Federated Bond Fund, dated October 31,
1996.
4. Audited Financial Statements of Quality Income Portfolio, a portfolio
of William Penn Interest Income Fund, dated December 31, 1996.
The Statement of Additional Information of Federated Bond Fund (the
"Federated Fund"), a portfolio of Investment Series funds, Inc. (the
`Corporation'') dated February 28, 1997, is incorporated herein by
reference to Post-Effective Amendment No.12 to the Corporation's
Registration Statement on Form N-1A (File Nos. 33-48847 and 811-07021)
which was filed with the Securities and Exchange Commission on or about
February 28, 1997. A copy may be obtained, upon request and without
charge, from the Federated Fund at Federated Investors Tower, Pittsburgh,
PA 15222-3279; telephone number: 1-800-341-7400.
The Statement of Additional Information of Quality Income Portfolio
(the "William Penn Portfolio"), a portfolio of William Penn Interest Income
Fund (the "Trust"), dated March 15, 1996, is incorporated herein by
reference to Post-Effective Amendment No. 16 to the Trust's Registration
Statement on Form N-1A (File Nos. 33-14609 and 811-5177) which was filed
with the Securities and Exchange Commission on or about March 21, 1996. A
copy may be obtained, upon request and without charge, from the William
Penn Portfolio at 2650 Westview Drive, Wyomissing, Pennsylvania 19610;
telephone number: 1-800-523-8440.
The audited financial statements of the Federated Fund, dated
October 31, 1996, are incorporated herein by reference to the Federated
Fund's Annual Report to Shareholders dated October 31, 1996, which was
filed with the Securities and Exchange Commission. A copy may be obtained,
upon request and without charge, from the Federated Fund at Federated
Investors Tower, Pittsburgh, PA 15222-3279; telephone number: 1-800-341-
7400.
The audited financial statements of the William Penn Portfolio,
dated December 31, 1996, are incorporated herein by reference to the
William Penn Portfolio's Annual Report to Shareholders dated December 31,
1996, which was filed with the Securities and Exchange Commission. A copy
may be obtained, upon request and without charge, from the State Bond Fund
at 2650 Westview Drive, Wyomissing, Pennsylvania 19610; telephone number 1-
800-523-8440.
Sheraton Berkshire Motor Inn
1741 Paper Mill Road
Wyomissing, PA 19610
QUALITY INCOME PORTFOLIO
a Portfolio of
WILLIAM PENN INTEREST INCOME FUND,
SPECIAL MEETING OF SHAREHOLDERS
May 29, 1997
QUALITY INCOME PORTFOLIO
a Portfolio of
WILLIAM PENN INTEREST INCOME FUND
The undersigned shareholder(s) of Quality Income Portfolio, a portfolio of
William Penn Interest Income Fund (the `William Penn Portfolio''), hereby
appoint(s) James E. Jordan, Sandra Houck, and Dennis Westley, or any of
them true and lawful proxies, with power of substitution of each, to vote
all shares of the William Penn Portfolio which the undersigned is entitled
to vote, at the Special Meeting of Shareholders to be held on May 29, 1997,
at Sheraton Berkshire Motor Inn
1741 Paper Mill Road, Wyomissing, PA 19610, at 9:00 a.m. (general meeting)
and 10:00 a.m. (Fund meeting) (local time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The proxies
named will vote the shares represented by this proxy in accordance with the
choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED AFFIRMATIVELY ON THAT MATTER.
The Board Of Trustees unanimously recommends a vote FOR the proposal below.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
QUALITY INCOME PORTFOLIO
RECORD DATE SHARES:
-----------------
Vote on Proposal
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
THE WILLIAM PENN INTEREST INCOME FUND, QUALITY INCOME PORTFOLIO AND
INVESTMENT SERIES FUNDS, INC., FEDERATED BOND FUND.
FOR AGAINST ABSTAIN
- -----------------------------------
Signature
Signature (Joint Owners)
Date:
---------------------------------
PART C - OTHER INFORMATION
Item 15. Indemnification
Indemnification is provided to directors and officers of the
Registrant pursuant to the Registrant's Articles of Incorporation, except
where such indemnification is not permitted by law. However, the Articles
of Incorporation do not protect the directors or officers from liability
based on willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of their office.
Directors and officers of the Registrant are insured against
certain liabilities, including liabilities arising under the Securities Act
of 1933 (the "Act").
Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers, and controlling persons of the
Registrant by the Registrant pursuant to the Articles of Incorporation or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by directors,
officers, or controlling persons of the Registrant in connection with the
successful defense of any act, suit, or proceeding) is asserted by such
directors, officers, or controlling persons in connection with the shares
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Insofar as indemnification for liabilities may be permitted
pursuant to Section 17 of the Investment Company Act of 1940 for directors,
officers, or controlling persons of the Registrant by the Registrant
pursuant to the Articles of Incorporation or otherwise, the Registrant is
aware of the position of the Securities and Exchange Commission as set
forth in Investment Company Act Release No. IC-11330. Therefore, the
Registrant undertakes that in addition to complying with the applicable
provisions of the Articles of Incorporation or otherwise, 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 directors who are not interested persons of the Registrant 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 Registrant 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,
director, or controlling person of the Registrant 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 Registrant is
insured against losses arising by reason of any lawful advances; or (iii) a
majority of a quorum of disinterested non-party 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.
Item 16. Exhibits
1.1 Conformed Copy of Articles of Incorporation of the Registrant(1)
2.1 Copy of the Bylaws of the Registrant(1)
3 Not Applicable
4.1 Agreement and Plan of Reorganization dated as of March 24, 1997,
between William Penn Interest Income Fund, a Pennsylvania common law trust,
on behalf of its portfolio, Quality Income Portfolio, and Investment Series
Funds, Inc., a Maryland corporation, on behalf of its portfolio, Federated
Bond Fund*
5.1 Copy of Specimen Certificate for Capital Stock of the Registrant(2)
5.2 Copy of Specimen Certificate for Class F Shares of Capital Stock of
the Registrant(3)
6.1 Conformed Copy of Investment Advisory Contract of the Registrant(4)
7.1 Conformed Copy of Distributors' Contract of the Registrant(5)
7.2 Conformed Copy of Exhibits C and D to the Distributors' Contract(6)
7.3 Conformed Copy of Exhibits E through G to the Distributors'
Contract(2)
7.4 The Registrant hereby incorporates the conformed copy of the specimen
Mutual Funds Sales and Service Agreement; Mutual Funds Service Agreement;
and Plan Trustee/Mutual Funds Service Agreement from Item 24(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)
8 Not Applicable
9.1 Conformed Copy of Custodian Agreement of the Registrant(4)
10.1 Conformed Copy of Distribution Plan of the Registrant(5)
10.2 Conformed Copy of Exhibits B and C to the Distribution Plan(6)
10.3 Conformed Copy of Exhibits D through F to the Distribution Plan(2)
10.4 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)
10.5 The responses described in Item 16 (7.3) are hereby incorporated by
reference
11.1 Opinion of S. Elliott Cohan, Deputy General Counsel, Federated
Investors regarding legality of shares being issued*
12.1 Opinion of Dickstein Shapiro Morin & Oshinsky LLP regarding tax
consequences of Reorganization(7)
13.1 Conformed Copy of Agreement for Fund Accounting Services,
Administrative Services, Transfer Agency Services and Custody Services
Procurement(3)
13.2 The responses described in Item 16 (7.3) and Item 16 (10.3) are hereby
incorporated by reference
14.1 Conformed Copy of Consent of Independent Auditors of Registrant, Ernst
& Young LLP*
14.2 Conformed Copy of Consent of Independent Auditors of Quality Income
Portfolio, Ernst & Young LLP*
15 Not Applicable
16 Conformed Copy of Power of Attorney*
17.1 Declaration under Rule 24f-2*
17.2 Form of Proxy of Quality Income Portfolio*
* Filed electronically.
(1) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed August 21, 1992. (File Nos.33-
48847 and 811-07021)
(2) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed on July 27, 1995. (File Nos.33-48847
and 811-07021)
(3) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed February 18, 1997 (File Nos.33-48847
and 811-07021)
(4) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed December 29, 1993. (File Nos.33-48847
and 811-07021)
(5) Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed September 8, 1992. (File Nos.33-48847
and 811-07021)
(6) Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed December 23, 1994. (File Nos.33-48847
and 811-07021)
(7) To be filed by Post-effective Amendment pursuant to `Dear
Registrant''letter dated February 15, 1996.
Item 17. Undertakings
(1) The undersigned Registrant agrees that prior to any public
reoffering of the securities registered through the use of a prospectus
which is a part of this Registration Statement by any person or party who
is deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings
by persons who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that
is filed under paragraph (1) above will be filed as a part of an amendment
to the Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new
Registration Statement for the securities offered therein, and the offering
of the securities at that time shall be deemed to be the initial bona fide
offering of them.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Investment Series Funds, Inc., has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pittsburgh, Commonwealth of
Pennsylvania on March 24, 1997.
INVESTMENT SERIES FUNDS, INC.
(Registrant)
By: *
J. Christopher Donahue
President
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities indicated on March 24, 1997:
* Chairman and Director
John F. Donahue
(Chief Executive Officer)
* President and Director
J. Christopher Donahue
* Treasurer, Executive Vice President and
Secretary
John W. McGonigle
(Principal Financial and
Accounting Officer)
* Director
Thomas G. Bigley
* Director
John T. Conroy, Jr.
* Director
William J. Copeland
* Director
James E. Dowd
* Director
Lawrence D. Ellis, M.D.
* Director
Edward L. Flaherty, Jr.
* Director
Peter E. Madden
* Director
Gregor F. Meyer
* Director
John E. Murray, Jr., J.D., S.J.D.
* Director
Wesley W. Posvar
* Director
Marjorie P. Smuts
1* By: /s/ S. Elliott Cohan
Attorney in Fact
EXHIBIT 11
INVESTMENT SERIES FUNDS, INC.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
March 24, 1997
The Directors of Investment Series Funds, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
Federated Bond Fund (the `Fund''), a portfolio of Investment Series Funds,
Inc. (the `Corporation''), a Maryland Corporation, proposes to issue
shares of capital stock (such shares of capital stock being herein referred
to as `Shares'') in connection with the acquisition of the assets of
Quality Income Portfolio, a portfolio of William Penn Interest Income Fund,
a Pennsylvania common law trust, pursuant to the Agreement and Plan of
Reorganization dated as of March 24, 1997 (`Agreement''), filed as an
exhibit to the registration statement of the Fund filed on Form N-14
(Securities Act of 1933 No. to be assigned) under the Securities Act of
1933 as amended (`N-14 Registration'').
As counsel I have participated in the organization of the Corporation, its
registration under the Investment Company Act of 1940, the registration of
its securities on Form N-1A under the Securities Act of 1933 and its N-14
Registration. I have examined and am familiar with the written Articles of
Incorporation dated May 20, 1992 (`Articles of Incorporation''), the
Bylaws of the Corporation, the Agreement and such other documents and
records deemed relevant. I have also reviewed questions of law and
The Directors of Investment Series Funds, Inc.
March 6, 1997
Page 2
consulted with counsel thereon as deemed necessary or appropriate for the
purposes of this opinion.
Based upon the foregoing, it is my opinion that:
1. The Corporation is duly organized and validly existing pursuant to the
Articles of Incorporation.
2. The Shares which are currently being registered by the N-14
Registration may be legally and validly issued in accordance with the
provisions of the Agreement and the Articles of Incorporation upon receipt
of consideration sufficient to comply with the provisions of Article Fourth
of the Articles of Incorporation and subject to compliance with the
Investment Company Act of 1940, as amended, and applicable state laws
regulating the sale of securities. Such Shares, when so issued, will be
fully paid and non-assessable.
I consent to your filing this opinion as an exhibit to the N-14
Registration referred to above and to any application or registration
statement filed under the securities laws of any of the states of the
United States.
Very truly yours,
INVESTMENT SERIES FUNDS, INC.
The Directors of Investment Series Funds, Inc.
March 6, 1997
Page 2
By:/s/ S. Elliott Cohan
S. Elliott Cohan
Exhibit 14.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm in The Agreement and Plan of
Reorganization and to the use of our Report dated December 16, 1996, with
respect to the financial statements and financial highlights of Federated
Bond Fund as of October 31, 1996, a portfolio of Investment Series Funds,
Inc. incorporated by reference in the Registration Statement on Form N-14
and related Prospectus/Proxy Statement and Statement of Additional
Information of Federated Bond Fund.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Pittsburgh, Pennsylvania
March 19, 1997
Exhibit 14.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in the Registration Statement
on Form N-14 ("Registration Statement") of Federated Bond Fund, a portfolio
of Investment Series Funds, Inc., of our report dated January 19, 1996,
appearing in the Annual Report of Quality Income Portfolio, a portfolio of
William Penn Interest Income Fund, for the year ended December 31, 1995,
and to the incorporation by reference of such report in the Prospectus and
Statement of Additional Information of Quality Income Portfolio, a
portfolio of William Penn Interest Income Fund, dated March 15, 1996, and
the incorporation by reference in the Registration Statement of Federated
Bond Fund, a portfolio of Investment Series Funds, Inc., of our report
dated January 22, 1997, appearing in the Annual Report of Quality Income
Portfolio, a portfolio of William Penn Interest Income Fund, for the year
ended December 31, 1996.
By:/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Reading, PA
March 19, 1997
Exhibit 16
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of INVESTMENT SERIES FUNDS,
INC. and the Deputy General Counsel of Federated Services Company, and each
of them, their true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for them and in their names, place
and stead, in any and all capacities, to sign any and all documents to be
filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file the
same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be
done in connection therewith, as fully to all intents and purposes as each
of them might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and Director December 6, 1996
John F. Donahue (Chief Executive Officer)
/s/J. Christopher Donahue President and Director December 6, 1996
J. Christopher Donahue
/s/John W. McGonigle Treasurer, Executive December 6, 1996
John W. McGonigle Vice President and Secretary
Principal Financial and
Accounting Officer)
/s/Thomas G. Bigley Director December 6, 1996
Thomas G. Bigley
/s/John T. Conroy, Jr. Director December 6, 1996
John T. Conroy, Jr.
/s/William J. Copeland Director December 6, 1996
William J. Copeland
/s/James E. Dowd Director December 6, 1996
James E. Dowd
/s/Lawrence D. Ellis, M.D. Director December 6, 1996
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Director December 6, 1996
Edward L. Flaherty, Jr.
/s/Peter E. Madden Director December 6, 1996
Peter E. Madden
/s/Gregor F. Meyer Director December 6, 1996
Gregor F. Meyer
/s/John E. Murray, Jr. Director December 6, 1996
John E. Murray, Jr.
/s/Wesley W. Posvar Director December 6, 1996
Wesley W. Posvar
/s/Marjorie P. Smuts Director December 6, 1996
Marjorie P. Smuts
Sworn to and subscribed before me this 6th day of December, 1996
/s/Marie M. Hamm
Marie M. Hamm
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Alleghny County
My Commission Expires Oct. 9, 2000
EXHIBIT 17.1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 24F-2
ANNUAL NOTICE OF SECURITIES SOLD
PURSUANT TO RULE 24F-2
Read instructions at end of Form before preparing Form.
Please print or type.
1. Name and address of issuer:
Investment Series Funds, Inc.
Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
2. Name of each series or class of funds for which this
notice is filed: Federated Bond Fund, Inc.
3. Investment Company Act File Number: 811-07021
Securities Act File Number: 33-48847
4. Last day of fiscal year for which this notice is filed:
October 31, 1996
5. Check box if this notice is being filed more than 180 days after the
close of the issuer's fiscal year for purposes of reporting securities sold
after the close of the fiscal year but before termination of the issuer's
24f-2 declaration:
[ ]
6. Date of termination of issuer's declaration under rule
24f-2(a)(1), if applicable:
7. Number and amount of securities of the same class or series which had
been registered under the Securities Act of 1933 other than pursuant to
rule 24f-2 in a prior fiscal year, but which remained unsold at the
beginning of the fiscal year: 0:$0
8. Number and amount of securities registered during the
fiscal year other than pursuant to rule 24f-2: 0:$0
9. Number and aggregate sale price of securities sold during the fiscal
year (includes DRIP shares): 31,123,933; $305,295,887
10. Number and aggregate sale price of securities sold during the fiscal
year in reliance upon registration pursuant to rule 24f-2: 31,123,933;
$305,295,887
11. Number and aggregate sale price of securities issued during the fiscal
year in connection with dividend reinvestment plans, if applicable:
12. Calculation of registration fees:
(i) Aggregate sale price of securities sold during the
fiscal
year in reliance on rule 24f-2 (from Item 10): $
305,295,887
(ii) Aggregate price of shares issued in connection
with
dividend reimbursement plans
(from Item 11, if applicable) +
(iii) Aggregate
price of shares redeemed or repurchased
during the fiscal year (if applicable) -
81,441,611
(iv) Aggregate price of shares redeemed or repurchased
and previously applied as a reduction to filing
fees
pursuant to rule 24e-2 (if applicable) +
0
(v) Net aggregate price of securities sold and issued
during
the fiscal year in reliance on rule 24f-2 [line
(i), plus
line (ii), less line (iii), plus line (iv)] (if
applicable): $ 223,854,276
(vi) Multiplier prescribed by Section 6(b) of the
Securities
Act of 1933 or other applicable law or regulation
(see Instruction C.6): x
1/3300
(vii) Fee due [line
(i) or line (v) multiplied by line (vi)]: $67,835
Instruction: Issuers should complete lines (ii), (iii), (iv), and (v) only
if the form in being filed within 60 days after the close of the issuer's
fiscal year. See Instruction C.3.
13. Check box if fees are being remitted to the Commission's lockbox
depository as described in section 3a of the Commission's Rules of Informal
and Other Procedures (17 CFR 202.3a). [ ]
Date of mailing or wire transfer of filing fees to the Commission's
lockbox depository: December 16, 1996
SIGNATURES
This report has been signed below by the following persons
on behalf of the issuer and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary
Date: December 30, 1996
* Please print the name and title of the signing officer
below the signature.
FEDERATED ADMINISTRATIVE SERVICES
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
412-288-1900
December 30, 1996
Investment Series Funds, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
You have requested my opinion for use in conjunction with a Rule 24f-2
Notice for Investment Series Funds, Inc. (`Corporation'') to be filed in
respect of shares of the Corporation (`Shares'') sold for the fiscal year
ended
October 31, 1996, pursuant to the Corporation's registration statement
filed with the Securities and Exchange Commission (`SEC'') under the
Securities Act of 1933 (File No. 33-48847) (`Registration Statement'').
In its Registration Statement, the Corporation elected to register an
indefinite number of shares pursuant to the provisions of Investment
Company Act Rule 24f-2.
As counsel I have participated in the preparation and filing of the
Corporation's amended Registration Statement under the Securities Act of
1933. Further, I have examined and am familiar with the provisions of the
Articles of Incorporation dated May 20, 1992, the Bylaws of the Corporation
and such other documents and records deemed relevant. I have also reviewed
questions of law and consulted with counsel thereon as deemed necessary or
appropriate by me for the purposes of this opinion.
On the basis of the foregoing, it is my opinion the Shares sold for
the fiscal year ended October 31, 1996, registration of which the Rule 24f-
2 Notice makes definite in number, were legally issued, fully paid and non-
assessable by the Corporation.
I hereby consent to the filing of this opinion as an exhibit to the
Rule 24f-2 Notice referred to above, the Registration Statement of the
Corporation and to any application or registration statement filed under
the securities laws of any of the States of the United States.
The foregoing opinion is limited to the Federal laws of the United
States and the laws of the State of Maryland, and I am expressing no
opinion as to the effect of the laws of any other jurisdiction.
Very truly yours,
/s/ S. Elliott Cohan
S. Elliott Cohan
Fund Attorney
Investment Series Funds, Inc.
Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
December 30, 1996
EDGAR Operations Branch
Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, Northwest
Washington, DC 20549
RE: Form 24f-2 for Investment Series Funds, Inc.
1933 Act File No. 33-48847
1940 Act File No. 811-07021
Dear Sir or Madam:
Pursuant to the provisions of Rule 24f-2 of the Investment Company Act
of 1940, I enclose form 24f-2 for Investment Series Funds, Inc. This filing
has been filed electronically via EDGAR.
Since the aggregate sales price of securities sold exceeded the
aggregate redemption proceeds of securities redeemed during the period for
which form 24f- 2 is filed, an additional filing fee in the amount of
$67,835 pursuant to Rule 24f-2(c) has been FedDirect wire transferred to
the U.S. Treasury Lockbox at Mellon Bank in Pittsburgh.
As required by Rule 24f-2(b), a conformed opinion of counsel has been
electronically filed herewith which indicates whether the securities, the
registration of which this form makes definite in number, were legally
issued, fully paid and non-assessable.
Very truly yours,
/s/ S. Elliott Cohan
S. Elliott Cohan
Assistant Secretary
Enclosures
cc: Matthew G. Maloney, Esquire
Linda L. Banas
EXHIBIT 17.2
Sheraton Berkshire Motor Inn
1741 Paper Mill Road
Wyomissing, PA 19610
QUALITY INCOME PORTFOLIO
a Portfolio of
WILLIAM PENN INTEREST INCOME FUND,
SPECIAL MEETING OF SHAREHOLDERS
May 29, 1997
QUALITY INCOME PORTFOLIO
a Portfolio of
WILLIAM PENN INTEREST INCOME FUND
The undersigned shareholder(s) of Quality Income Portfolio, a portfolio of
William Penn Interest Income Fund (the `William Penn Portfolio''), hereby
appoint(s) James E. Jordan, Sandra Houck, and Dennis Westley, or any of
them true and lawful proxies, with power of substitution of each, to vote
all shares of the William Penn Portfolio which the undersigned is entitled
to vote, at the Special Meeting of Shareholders to be held on May 29, 1997,
at Sheraton Berkshire Motor Inn
1741 Paper Mill Road, Wyomissing, PA 19610, at 9:00 a.m. (general meeting)
and 10:00 a.m. (Fund meeting) (local time) and at any adjournment thereof.
Discretionary authority is hereby conferred as to all other matters as may
properly come before the Special Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The proxies
named will vote the shares represented by this proxy in accordance with the
choice made on this ballot. IF NO CHOICE IS INDICATED, THIS PROXY WILL BE
VOTED AFFIRMATIVELY ON THAT MATTER.
The Board Of Trustees unanimously recommends a vote FOR the proposal below.
Please sign EXACTLY as your name(s)
appear(s) above. When signing as
attorney, executor, administrator,
guardian, trustee, custodian, etc.,
please give your full title as
such. If a corporation or
partnership, please sign the full
name by an authorized officer or
partner. If stock is owned
jointly, all owners should sign.
PLEASE RETURN BOTTOM PORTION WITH YOUR VOTE IN THE ENCLOSED ENVELOPE AND
RETAIN THE TOP PORTION.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
KEEP THIS PORTION FOR YOUR RECORDS.
DETACH AND RETURN THIS PORTION ONLY.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
QUALITY INCOME PORTFOLIO
RECORD DATE SHARES:
-----------------
Vote on Proposal
TO APPROVE OR DISAPPROVE AN AGREEMENT AND PLAN OF REORGANIZATION BETWEEN
THE WILLIAM PENN INTEREST INCOME FUND, QUALITY INCOME PORTFOLIO AND
INVESTMENT SERIES FUNDS, INC., FEDERATED BOND FUND.
FOR AGAINST ABSTAIN
- -----------------------------------
Signature
Signature (Joint Owners)
EXHIBIT 4
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated , 1997 (the
--------
"Agreement"), between INVESTMENT SERIES FUNDS, INC., a Maryland Corporation
(the `Corporation'') on behalf of its portfolio FEDERATED BOND FUND
(hereinafter called the "Acquiring Fund"), and WILLIAM PENN INTEREST INCOME
FUND, a Pennsylvania Common Law Trust (hereinafter called the "Trust") on
behalf of its portfolio QUALITY INCOME PORTFOLIO (hereinafter called the
"Acquired Fund").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C)
of the United States Internal Revenue Code of 1986, as amended (the
"Code"). The reorganization (the "Reorganization") will consist of the
transfer of all the assets and the assumption of certain liabilities of the
Acquired Fund in exchange solely for Class A Shares and Class C Shares of
the Acquiring Fund (the "Acquiring Fund Shares") and the distribution,
after the Closing Date (as hereinafter defined), of the Acquiring Fund
Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund as provided herein, all upon the terms and conditions
hereinafter set forth in this Agreement.
WHEREAS, the Trust and the Corporation are registered open-end
management investment companies and the Acquired Fund owns securities in
which the Acquiring Fund is permitted to invest;
WHEREAS, both the Acquired Fund and the Acquiring Fund are
authorized to issue shares of common stock or shares of beneficial
interest, as the case may be;
WHEREAS, the Board of Directors, including a majority of the
directors who are not "interested persons" (as defined under the Investment
Company Act of 1940, as amended (the "1940 Act")), of the Acquiring Fund
has determined that the transfer of all of the assets and the assumption of
certain liabilities of the Acquired Fund for Acquiring Fund Shares is in
the best interests of the Acquiring Fund shareholders and that the
interests of the existing shareholders of the Acquiring Fund would not be
diluted as a result of this transaction; and
WHEREAS, the Board of Trustees, including a majority of the
trustees who are not "interested persons" (as defined under the 1940 Act),
of the Trust has determined that the transfer of all of the assets and the
assumption of certain liabilities of the Acquired Fund for Acquiring Fund
Shares is in the best interests of the Acquired Fund shareholders;
NOW THEREFORE, in consideration of the premises and of the
covenants and agreements hereinafter set forth, the parties agree as
follows:
1.TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE
ACQUIRING FUND SHARES AND LIQUIDATION OF THE ACQUIRED FUND.
1.1 Subject to the terms and conditions contained herein, the
Acquired Fund agrees to assign, transfer and convey to the Acquiring Fund
all of the assets of the Acquired Fund, including all securities and cash,
other than cash in an amount necessary to pay any unpaid dividends and
distributions as provided in paragraph 1.5, beneficially owned by the
Acquired Fund, and the Acquiring Fund agrees in exchange therefor to
deliver to the Acquired Fund the number of Acquiring Fund Shares, including
fractional Acquiring Fund Shares, determined as set forth in paragraph 2.3.
Such transaction shall take place at the closing (the "Closing") on the
closing date (the "Closing Date") provided for in paragraph 3.1. In lieu
of delivering certificates for the Acquiring Fund Shares, the Acquiring
Fund shall credit the Acquiring Fund Shares to the Acquired Fund's account,
for the benefit of its shareholders, on the stock record books of the
Acquiring Fund and shall deliver a confirmation thereof to the shareholders
of the Acquired Fund.
1.2 The Acquiring Fund will assume only those certain liabilities
which are set forth in a certificate to be provided by the Acquired Fund at
Closing and accepted by the Acquiring Fund.
1.3 Delivery of the assets of the Acquired Fund to be transferred
shall be made on the Closing Date and shall be delivered to State Street
Bank and Trust Company (hereinafter called "State Street"), Boston,
Massachusetts, the Acquiring Fund's custodian (the "Custodian"), for the
account of the Acquiring Fund, together with proper instructions and all
necessary documents to transfer to the account of the Acquiring Fund, free
and clear of all liens, encumbrances, rights, restrictions and claims
created by the Acquired Fund. All cash delivered shall be in the form of
immediately available funds payable to the order of the Custodian for the
account of the Acquiring Fund.
1.4 The Acquired Fund will pay or cause to be paid to the Acquiring
Fund any dividends or interest received on or after the Closing Date with
respect to assets transferred to the Acquiring Fund thereunder. The
Acquired Fund will transfer to the Acquiring Fund any distributions, rights
or other assets received by the Acquired Fund after the Closing Date as
distributions on or with respect to the securities transferred. Such
assets shall be deemed included in assets transferred to the Acquiring Fund
on the Closing Date and shall not be separately valued.
1.5 As soon after the Closing Date as is conveniently practicable,
the Acquired Fund will liquidate and distribute pro rata to the Acquired
Fund's shareholders of record, determined as of the close of business on
the Closing Date (the "Acquired Fund Shareholders"), the Acquiring Fund
Shares received by the Acquired Fund pursuant to paragraph 1.1. In
addition, each Acquired Fund Shareholder shall have the right to receive
any unpaid dividends or other distributions which were declared before the
Valuation Date (as hereinafter defined) with respect to the shares of the
Acquired Fund that are held by the shareholder on the Valuation Date. Such
liquidation and distribution will be accomplished by the transfer of the
Acquiring Fund Shares then credited to the account of the Acquired Fund on
the books of the Acquiring Fund to open accounts on the share record books
of the Acquiring Fund in the names of the Acquired Fund Shareholders, and
representing the respective pro rata number of the Acquiring Fund Shares
due such shareholders, based on their ownership of shares of the Acquired
Fund on the Closing Date. All issued and outstanding Shares of the
Acquired Fund will simultaneously be canceled on the books of the Acquired
Fund. Share certificates representing interests in the Acquired Fund will
represent a number of Acquiring Fund Shares, after the Closing Date as
determined in accordance with paragraph 2.3. The Acquiring Fund shall not
issue certificates representing the Acquiring Fund Shares in connection
with such exchange.
1.6 Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be
issued in the manner described in the Acquiring Fund's current prospectus
and statement of additional information.
1.7 Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund
shares on the books of the Acquired Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.8 Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Trust up to and including the Closing Date
and such later dates, with respect to dissolution and deregistration of the
Trust, on which the Trust is dissolved and deregistered.
1.9 The Trust shall be deregistered as an investment company under
the 1940 Act and dissolved as a Pennsylvania common law trust as promptly
as practicable following the Closing Date and the making of all
distributions pursuant to paragraph 1.5.
2.VALUATION.
2.1 The value of the Acquired Fund's net assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of
the close of the New York Stock Exchange (normally 4:00 p.m. Eastern time)
on the Closing Date (such time and date being herein called the "Valuation
Date"), using the valuation procedures set forth in the Acquiring Fund's
then-current prospectus or statement of additional information.
2.2 The net asset value of each Acquiring Fund Share shall be the net
asset value per share computed as of the close of the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on the Valuation Date, using the
valuation procedures set forth in the Acquiring Fund's then-current
prospectus or statement of additional information.
2.3 The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Acquired Fund's net assets
shall be determined by dividing the value of the net assets of the Acquired
Fund determined using the same valuation procedures referred to in
paragraph 2.1, by the net asset value of one Acquiring Fund Share
determined in accordance with paragraph 2.2.
2.4 All computations of value shall be made in accordance with the
regular practices of the Acquiring Fund, which practices have been reviewed
by the Acquired Fund's Board of Trustees.
3.CLOSING AND CLOSING DATE.
3.1 The Closing Date shall be [ ] or such later date as
the parties may mutually agree. All acts taking place at the Closing shall
be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held at
4:00 p.m. (Eastern time) at the offices of the Acquiring Fund, Federated
Investors Tower, Pittsburgh, PA 15222-3779, or such other time and/or place
as the parties may mutually agree.
3.2 If on the Valuation Date (a) the primary trading market for
portfolio securities of the Acquiring Fund or the Acquired Fund shall be
closed to trading or trading thereon shall be restricted; or (b) trading or
the reporting of trading shall be disrupted so that accurate appraisal of
the value of the net assets of the Acquiring Fund or the Acquired Fund is
impracticable, the Closing Date shall be postponed until the first business
day after the day when trading shall have been fully resumed and reporting
shall have been restored.
3.3 Penn Square Management Corporation, as transfer agent for the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the
Acquired Fund Shareholders and the number and percentage ownership of
outstanding shares owned by each such shareholder immediately prior to the
Closing. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to
the Secretary of the Acquired Fund, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the other such bills of sale, checks,
assignments, assumption agreements, share certificates, if any, receipts or
other documents as such other party or its counsel may reasonably request.
4.REPRESENTATIONS AND WARRANTIES.
4.1 The Trust represents and warrants to the Acquiring Fund as
follows:
(a) The Trust is a Common Law Trust duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Pennsylvania and has power to own all of its properties and assets and to
carry out this Agreement.
(b) The Trust is registered under the 1940 Act, as an open-
end, management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
(c) The Trust is not, and the execution, delivery and
performance of this Agreement will not result, in material violation of the
Trust's Declaration of Trust or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquired Fund is a party
or by which it is bound.
(d) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will result in
liability to it after the Closing Date.
(e) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquired Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquired Fund knows of no facts which might form the basis
for the institution of such proceedings, and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated.
(f) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the
"1933 Act"), and the 1940 Act and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder and do not
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Statement of Assets and Liabilities of the Acquired
Fund at December 31, 1995 and at December 31, 1996 has been audited by
Ernst & Young LLP, independent auditors, and have been prepared in
accordance with generally accepted accounting principles, consistently
applied, and such statements (copies of which have been furnished to the
Acquiring Fund) fairly reflect the financial condition of the Acquired Fund
as of such dates, and there are no known contingent liabilities of the
Acquired Fund as of such dates not disclosed therein.
(h) Since December 31, 1996, there has not been any
material adverse change in the Acquired Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business.
(i) At the Closing Date, all federal and other tax returns
and reports of the Acquired Fund required by law to have been filed by such
date shall have been filed or an appropriate extension obtained, and all
federal and other taxes shall have been paid so far as due, or provision
shall have been made for the payment thereof or contest in good faith, and
to the best of the Acquired Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Acquired
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company.
(k) All issued and outstanding shares of the Acquired Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. All of the issued and
outstanding shares of the Acquired Fund will, at the time of the Closing,
be held by the persons and in the amounts set forth in the records of the
transfer agent as provided in paragraph 3.3. The Acquired Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares.
(l) On the Closing Date, the Acquired Fund will have full
right, power and authority to sell, assign, transfer and deliver the assets
to be transferred by it hereunder.
(m) The execution, delivery and performance of this
Agreement will have been duly authorized prior to the Closing Date by all
necessary action on the part of the Trust and, subject to the approval of
the Acquired Fund Shareholders, this Agreement constitutes the valid and
legally binding obligation of the Acquired Fund enforceable in accordance
with its terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws
relating to or affecting creditors' rights generally and court decisions
with respect thereto, and to general principles of equity and the
discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(n) The prospectus/proxy statement of the Acquired Fund
(the "Prospectus/Proxy Statement") to be included in the Registration
Statement referred to in paragraph 5.5 (only insofar as it relates to the
Acquired Fund) will, on the effective date of the Registration Statement
and on the Closing Date, not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which such statements were made, not misleading.
4.2 The Corporation represents and warrants to the Trust as follows:
(a) The Corporation is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Maryland and has the power to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) The Corporation is registered under the 1940 Act as an
open-end, diversified, management investment company, and such registration
has not been revoked or rescinded and is in full force and effect.
(c) The Acquiring Fund is not, and the execution, delivery
and performance of this Agreement will not result, in material violation of
the Corporation's Articles of Incorporation or Bylaws or of any agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquiring Fund is a party or by which it is bound.
(d) No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or to its knowledge threatened against the Acquiring Fund or any of
its properties or assets which, if adversely determined, would materially
and adversely affect its financial condition or the conduct of its
business. The Acquiring Fund knows of no facts which might form the basis
for the institution of such proceedings, and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions contemplated herein.
(e) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(f) The Statements of Assets and Liabilities of the
Acquiring Fund at October 31, 1995 and 1996, have been audited by Ernst &
Young LLP, independent auditors, and have been prepared in accordance with
generally accepted accounting principles, and such statements (copies of
which have been furnished to the Acquired Fund) fairly reflect the
financial condition of the Acquiring Fund as of such dates, and there are
no known contingent liabilities of the Acquiring Fund as of such dates not
disclosed therein.
(g) Since October 31, 1996, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets,
liabilities or business other than changes occurring in the ordinary course
of business.
(h) At the Closing Date, all federal and other tax returns
and reports of the Acquiring Fund required by law to have been filed or an
appropriate extension obtained, by such date shall have been filed, and all
federal and other taxes shall have been paid so far as due, or provision
shall have been made for the payment thereof or contest in good faith, and
to the best of the Acquiring Fund's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such
returns.
(i) For each fiscal year of its operation, the Acquiring
Fund has met the requirements of Subchapter M of the Code for qualification
and treatment as a regulated investment company.
(j) All issued and outstanding Acquiring Fund Shares are,
and at the Closing Date will be, duly and validly issued and outstanding,
fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund Shares, nor is there outstanding any
security convertible into any Acquiring Fund Shares, except for Class B
Shares which are convertible to Class A Shares eight years after purchase.
(k) The execution, delivery and performance of this
Agreement has been duly authorized by all necessary action on the part of
the Corporation, and this Agreement constitutes the valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with its
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting creditors' rights generally and court decisions with respect
thereto, and to general principles of equity and the discretion of the
court (regardless of whether the enforceability is considered in a
proceeding in equity or at law).
(l) The Prospectus/Proxy Statement to be included in the
Registration Statement (only insofar as it relates to the Acquiring Fund)
will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which such
statements were made, not misleading.
5.COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND.
5.1 The Acquiring Fund and the Acquired Fund each will operate its
business in the ordinary course between the date hereof and the Closing
Date, it being understood that such ordinary course of business will
include customary dividends and distributions.
5.2 The Trust will call a meeting of the Acquired Fund Shareholders
to consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 Subject to the provisions of this Agreement, the Acquiring Fund
and the Acquired Fund will each take, or cause to be taken, all action, and
do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement.
5.4 As promptly as practicable, but in any case within sixty days
after the Closing Date, the Acquired Fund shall furnish the Acquiring Fund,
in such form as is reasonably satisfactory to the Acquiring Fund, a
statement of the earnings and profits of the Acquired Fund for federal
income tax purposes which will be carried over to the Acquiring Fund as a
result of Section 381 of the Code and which will be certified by the
Trust's President and its Treasurer.
5.5 The Acquired Fund will provide the Acquiring Fund with
information reasonably necessary for the preparation of the
Prospectus/Proxy Statement, referred to in paragraph 4.1(o), all to be
included in a Registration Statement on Form N-14 of the Acquiring Fund
(the "Registration Statement"), in compliance with the 1933 Act, the
Securities Exchange Act of 1934, as amended, and the 1940 Act in connection
with the meeting of the Acquired Fund Shareholders to consider approval of
this Agreement and the transactions contemplated herein.
5.6 The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and the 1940 Act
as it may deem appropriate in order to continue its operations after the
Closing Date.
5.7 Prior to the Valuation Date, the Acquired Fund shall have
declared a dividend or dividends, with a record date and ex-dividend date
prior to the Valuation Date, which, together with all previous dividends,
shall have the effect of distributing to its shareholders all of its
investment company taxable income, if any, plus the excess of its interest
income, if any, excludable from gross income under Section 103(a) of the
Code over its deductions disallowed under Sections 265 and 171(a)(2) of the
Code for the taxable periods or years ended on or before December 31, 1996
and for the period from said date to and including the Closing Date
(computed without regard to any deduction for dividends paid), and all of
its net capital gain, if any, realized in taxable periods or years ended on
or before December 31, 1996 and in the period from said date to and
including the Closing Date.
6.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance
by the Acquired Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
6.1 All representations and warranties of the Trust contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date.
6.2 The Trust shall have delivered to the Acquiring Fund a statement
of the Acquired Fund's assets, together with a list of the Acquired Fund's
portfolio securities showing the tax costs of such securities by lot and
the holding periods of such securities, as of the Closing Date, certified
by the Treasurer of the Trust.
6.3 The Trust shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the
Acquiring Fund, to the effect that the representations and warranties of
the Trust made in this Agreement are true and correct in all material
respects at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquiring Fund shall reasonably request.
6.4 The Acquired Fund shall have delivered to the Acquiring Fund a
certificate specifying the liabilities which are to be assumed by the
Acquiring Fund, all of which shall be reflected in the net asset value of
the Acquired Fund on the Closing Date, which liabilities shall be
acceptable to the Acquiring Fund in its sole discretion.
7.CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to consummate the transactions
provided herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by it hereunder
on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Corporation contained
in this Agreement shall be true and correct in all material respects as of
the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Closing Date with the same force
and effect as if made on and as of the Closing Date.
7.2 The Corporation shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer, in form and substance satisfactory to the
Acquired Fund, to the effect that the representations and warranties of the
Corporation made in this Agreement are true and correct in all material
respects at and as of the Closing Date, except as they may be affected by
the transactions contemplated by this Agreement, and as to such other
matters as the Acquired Fund shall reasonably request.
7.3 There shall not have been any material adverse change in the
Acquiring Fund's financial condition, assets, liabilities or business since
the date hereof other than changes occurring in the ordinary course of
business, or any incurrence by the Acquiring Fund of any indebtedness,
except as otherwise disclosed to and accepted by the Acquired Fund.
8.FURTHER CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRING
FUND AND THE ACQUIRED FUND.
If any of the conditions set forth below do not exist on or before
the Closing Date with respect to the Acquired Fund or the Acquiring Fund,
either party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement.
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the
Trust's Articles of Incorporation and the 1940 Act.
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with,
this Agreement or the transactions contemplated herein.
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky and securities authorities) deemed
necessary by the Acquiring Fund or the Acquired Fund to permit
consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse
effect on the assets or properties of the Acquiring Fund or the Acquired
Fund, provided that either party hereto may for itself waive any of such
conditions.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have
been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act.
8.5 The Corporation and the Trust shall have received an opinion of
Dickstein Shapiro Morin & Oshinsky LLP substantially to the effect that for
federal income tax purposes:
(a) The transfer of all of the Acquired Fund assets and the
assumption of certain liabilities in exchange for the Acquiring Fund Shares
and the distribution of the Acquiring Fund Shares to the Acquired Fund
Shareholders in liquidation of the Acquired Fund will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code;
(b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
Acquiring Fund Shares and the assumption of certain liabilities; (c) No
gain or loss will be recognized by the Acquired Fund upon the transfer of
the Acquired Fund assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption of certain liabilities or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares
to Acquired Fund Shareholders in exchange for their shares of the Acquired
Fund; (d) No gain or loss will be recognized by the Acquired Fund
Shareholders upon the exchange of their Acquired Fund shares for the
Acquiring Fund Shares; (e) The tax basis of the Acquired Fund assets
acquired by the Acquiring Fund will be the same as the tax basis of such
assets to the Acquired Fund immediately prior to the Reorganization;
(f) The tax basis of the Acquiring Fund Shares received by each of the
Acquired Fund Shareholders pursuant to the Reorganization will be the same
as the tax basis of the Acquired Fund shares held by such shareholder
immediately prior to the Reorganization; (g) The holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Acquired Fund; and
(h) The holding period of the Acquiring Fund Shares to be received by each
Acquired Fund Shareholder will include the period during which the Acquired
Fund shares exchanged therefor were held by such shareholder (provided the
Acquired Fund shares were held as capital assets on the date of the
Reorganization).
9.TERMINATION OF AGREEMENT.
9.1 This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of Trustees of the
Trust or the Board of Directors of the Corporation at any time prior to the
Closing Date (and notwithstanding any vote of the Acquired Fund
Shareholders) if a majority of the independent board members of either
board reasonably believes that continuing the transaction would have a
material adverse impact on shareholders of that fund.
9.2 If this Agreement is terminated and the exchange contemplated
hereby is abandoned pursuant to the provisions of this Section 9, this
Agreement shall become void and have no effect, without any liability on
the part of any party hereto or the directors or officers of the Trust or
the Corporation or the shareholders of the Acquiring Fund or of the
Acquired Fund, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing
conditions may be waived by the Board of Directors of the Corporation or
the Board of Trustees of the Trust, if, in the judgment of either, such
waiver will not have a material adverse effect on the benefits intended
under this Agreement to the shareholders of the Acquiring Fund or of the
Acquired Fund, as the case may be.
11. MISCELLANEOUS.
11.1 None of the representations and warranties included or provided
for herein shall survive consummation of the transactions contemplated
hereby.
11.2 This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and
merges and supersedes all prior discussions, agreements and understandings
of every kind and nature between them relating to the subject matter
hereof. Neither party shall be bound by any condition, definition,
warranty or representation, other than as set forth or provided in this
Agreement or as may be set forth in a later writing signed by the party to
be bound thereby.
11.3 This Agreement shall be governed and construed in accordance with
the internal laws of the Commonwealth of Pennsylvania, without giving
effect to principles of conflicts of laws.
11.4 This Agreement may be executed in any number of counterparts,
each of which, when executed and delivered, shall be deemed to be an
original.
11.5 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
11.6 An agreement has been entered into under which Federated Advisers
will assume substantially all of the expenses of the Reorganization
including registration fees, transfer taxes (if any), the fees of banks and
transfer agents and the costs of preparing, printing, copying and mailing
proxy solicitation materials to the Acquired Fund Shareholders and the
costs of holding the special meeting of shareholders. Penn Square
Management Corporation will assume the legal and accounting fees of the
Acquired Fund.
IN WITNESS WHEREOF, the Acquired Fund and the Acquiring Fund have
each caused this Agreement and Plan of Reorganization to be executed and
attested on its behalf by its duly authorized representatives as of the
date first above written.
Acquired Fund:
WILLIAM PENN INTEREST INCOME FUND,
on behalf of its portfolio,
Attest: QUALITY INCOME PORTFOLIO
By:
Name: Name:
Title: Title:
Acquiring Fund:
Attest: INVESTMENT SERIES FUNDS, INC.
On behalf of its portfolio.
FEDERATED BOND FUND
By:
Name: S. Elliott Cohan Name: J. Christopher Donahue
Title:Assistant Secretary Title: President
