Administration December 5, 2004

Federated Imposes Redemption on Some Funds

May 12, 2004 (PLANSPONSOR.com) - Federated Investors, one of the fund families implicated in the mutual-fund trading scandal, is adding redemption fees to nine funds to combat short-term trading.
Reported by

The Pittsburgh-based fund complex says it will add a 2% redemption fee to the Class A shares of its seven international equity funds and two of its three high-yield bond funds starting May 15, according to CBSMarketWatch, citing spokeswoman Meghan McAndrew.

The fees apply to investors redeeming or exchanging international fund shares within 30 days of purchase and high-yield shares within 90 days, according to the report.

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The international funds affected include:

  • International Equity (FTITX)
  • International Capital Appreciation (IGFAX)
  • International Small Company (ISCAX)
  • Global Value (WUFAX)

The two bond funds are the High Income Bond (FHIIX) and High Yield Trust (FHYTX).   Federated’s other high-yield fund, Institutional High Yield Bond (FIHBX), already carries a 2 percent redemption fee, she said.

The funds’ B and C share classes will levy similar fees beginning August 1.

Federated is just the most recent fund complex implicated in the scandal to impose such redemption fees.  Others include  PIMCO, Franklin Templeton,  and  MFS .  In late February, the Securities and Exchange Commission put out for public comment a proposal to impose a mandatory 2% redemption fee on such trading (see  SEC Goes “Public” with Redemption Proposal ).

Federated said last fall that its funds apparently were used for illegal late-trading schemes and involved in unethical market-timing arrangements that violated rules outlined in the funds’ prospectuses. Federal and state securities regulators are investigating whether Federated allowed any improper trading in its funds (see  Federated Confesses 15 Late Trades ).

Earlier this year Federated unveiled a series of changes resulting from its internal review of its fund practices, including some employee sanctions, increased trading oversight, modification of the firm’s code of ethics, outsourcing of its transfer agency functions, and the establishment of a $7.6 million restoration fund (see  Federated Concludes Internal Fund Trading Review ).

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