Exhibit 77E
LEGAL PROCEEDINGS
Since October 2003, Federated and related
entities (collectively, "Federated"), and
various Federated funds ("Funds"), have been
named as
defendants in several class action lawsuits
now pending in the United States District Court
for the District of Maryland. The lawsuits were
purportedly filed on behalf of people who purchased,
owned and/or redeemed shares of Federated-sponsored
mutual funds during specified periods
beginning November 1, 1998. The suits are generally
similar in alleging that Federated engaged in
illegal and improper trading practices including
market timing and late trading in concert with certain
institutional traders, which allegedly caused
financial injury to the mutual fund shareholders.
These lawsuits began to be filed shortly after Federated's
first public announcement that it had received requests
for information on shareholder
trading activities in the Funds from the SEC, the Office
of the New York State Attorney General ("NYAG"), and
other authorities. In that regard,
on November 28, 2005, Federated announced that it had
reached final settlements with the SEC and the NYAG with
respect to those matters.
Specifically, the SEC and NYAG settled proceedings
against three Federated subsidiaries involving
undisclosed market timing arrangements and late
trading. The SEC made findings: that Federated Investment
Management Company ("FIMC"), an SEC-registered investment
adviser to various Funds,
and Federated Securities Corp., an SEC-registered
broker-dealer and distributor for the Funds, violated
provisions of the Investment Advisers Act
and Investment Company Act by approving, but not
disclosing, three market timing arrangements, or the
associated conflict of interest between
FIMC and the funds involved in the arrangements, either
to other fund shareholders or to the funds' board; and
that Federated Shareholder
Services Company, formerly an SEC-registered transfer
agent, failed to prevent a customer and a Federated
employee from late trading in violation
of provisions of the Investment Company Act. The NYAG
found that such conduct violated provisions of New York
State law. Federated entered
into the settlements without admitting or denying the
regulators' findings. As Federated previously reported
in 2004, it has already paid
approximately $8.0 million to certain funds as determined
by an independent consultant. As part of these settlements,
Federated agreed to pay
disgorgement and a civil money penalty in the aggregate
amount of an additional $72 million and, among other things,
agreed that it would not
serve as investment adviser to any registered investment
company unless (i) at least 75% of the fund's directors
are independent of Federated,
(ii) the chairman of each such fund is independent of
Federated, (iii) no action may be taken by the fund's
board or any committee thereof
unless approved by a majority of the independent trustees
of the fund or committee, respectively, and (iv) the fund
appoints a "senior officer" who
reports to the independent trustees and is responsible for
monitoring compliance by the fund with applicable laws and
fiduciary duties and for
managing the process by which management fees charged to a
fund are approved. The settlements are described in
Federated's announcement
which, along with previous press releases and related
communications on those matters, is available in the
"About Us" section of Federated's
website at FederatedInvestors.com.
Federated entities have also been named as defendants in
several additional lawsuits that are now pending in the
United States District Court for
the Western District of Pennsylvania, alleging, among other
things, excessive advisory and Rule 12b-1 fees.
The Board of the Funds retained the law firm of Dickstein
Shapiro LLP to represent the Funds in each of the lawsuits
described in the
preceding two paragraphs. Federated and the Funds, and
their respective counsel, have been defending this
litigation, and none of the Funds
remains a defendant in any of the lawsuits (though some
could potentially receive any recoveries as nominal
defendants). Additional lawsuits based
upon similar allegations may be filed in the future.
The potential impact of these lawsuits, all of which
seek unquantified damages, attorneys' fees,
and expenses, and future potential similar suits is
uncertain. Although we do not believe that these lawsuits
will have a material adverse effect on
the Funds, there can be no assurance that these suits,
ongoing adverse publicity and/or other developments
resulting from the regulatory
investigations will not result in increased Fund redemptions,
reduced sales of Fund shares, or other adverse consequences
for the Funds.