1933 Act File No. 2-57181
1940 Act File No. 811-2677
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 42 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 29 X
LIBERTY MUNICIPAL SECURITIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on _________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)
on _________________ pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on May 16, 1994; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of LIBERTY MUNICIPAL
SECURITIES FUND, INC. , which is comprised of three classes of shares,
Class A Shares (1); Class B Shares (2); and Class C Shares (3), is
comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page (1-3).
Item 2. Synopsis Summary of Fund Expenses (1-3).
Item 3. Condensed Financial
Information Financial Highlights (1,3).
Item 4. General Description of
Registrant Performance Information; General
Information; Liberty Family of Funds;
Liberty Family Retirement Program;
Investment Information; Investment
Objectives; Investment Policies;
Portfolio Turnover; Investment Risks;
Investment Limitations; Other Classes
of Shares (1-3).
Item 5. Management of the Fund Fund Information; Management of the
Fund; Distribution of Class A Shares
(l); Distribution of Class B Shares
(2); Distribution of Class C Shares
(3); Distribution Plan (2,3);
Shareholder Services Plan (1-3); Other
Payments to Financial Institutions;
Administration of the Fund (1-3);
Expenses of the Fund and Class B
Shares (2); Brokerage Transactions (1-
3).
Item 6. Capital Stock and Other
Securities Dividends and Distributions;
Shareholder Information; Voting
Rights; Tax Information; Pennsylvania
Corporate and Personal Property Taxes
(1-3).
Item 7. Purchase of Securities Being
Offered Net Asset Value (1-3); Investing in
Class A Shares (l); Investing in Class
B Shares (2); Investing in Class C
Shares (3); Share Purchases; Minimum
Investment Required; What Shares Cost
(1-3); Reducing the Sales Charge (l);
Systematic Investment Program;
Exchanging Securities for Fund Shares;
Certificates and Confirmations;
Retirement Plans; Exchange Privilege
(1-3); Reduced Sales Charge (l);
Requirements for Exchange; Tax
Consequences; Making an Exchange (1-
3).
Item 8. Redemption or Repurchase Redeeming Class A Shares (l);
Redeeming Class B Shares (2);
Redeeming Class C Shares (3); Through
a Financial Institution; Directly From
the Fund; Contingent Deferred Sales
Charge (2,3); Systematic Withdrawal
Program; Accounts With Low Balances
(1-3).
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page Cover page (1-3).
Item 11. Table of Contents Table of Contents (1-3).
Item 12. General Information and
History General Information About the Fund (1-
3).
Item 13. Investment Objectives and
Policies Investment Objective and Policies (1-
3).
Item 14. Management of the Fund See Part A - Management of the Fund
(1-3).
Item 15. Control Persons and Principal
Holders of Securities Fund Ownership (1-3).
Item 16. Investment Advisory and Other
Services Investment Advisory Services;
Administrative Services (1-3).
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchasing Shares (1-3); Distribution
Plan (Class B Shares and Class C
Shares Only) and Shareholder Services
Plan (1-3); Determining Net Asset
Value; Redeeming Shares (1-3).
Item 20. Tax Status Tax Status (1-3).
Item 21. Underwriters See Part A - Distribution of (Class A,
B or C) Shares (1-3).
Item 22. Calculation of Performance
Data Total Return; Yield; Current
Distributions (1-3); Performance
Comparisons (1-3).
Item 23. Financial Statements Financial Statements (incorporated by
reference into Part A, to Registrant's
Annual Report dated March 31, 1994;
File Nos. 2-57181 and 811-2677) (1,3);
To be filed by amendment (2).
LIBERTY MUNICIPAL SECURITIES FUND, INC.
CLASS A SHARES
PROSPECTUS
The Class A Shares of Liberty Municipal Securities Fund, Inc. (the "Fund")
represent interests in an open-end, diversified management investment company (a
mutual fund) with an investment objective of providing its shareholders a high
level of current income which is exempt from federal regular income tax by
investing in a professionally managed, diversified portfolio primarily limited
to municipal bonds.
THE CLASS A SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE CLASS A SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Class A Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares dated August __ 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated August __, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS A SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 3
- ------------------------------------------------------
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objective 4
Investment Policies 5
Acceptable Investments 5
Characteristics 5
When-Issued and Delayed Delivery
Transactions 5
Temporary Investments 5
Portfolio Turnover 6
Municipal Bonds 6
Investment Risks 7
Investment Limitations 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN CLASS A SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through a Financial Institution 8
Directly from the Distributor 8
Minimum Investment Required 9
What Shares Cost 9
Dealer Concession 10
Reducing the Sales Charge 10
Quantity Discounts and Accumulated
Purchases 10
Letter of Intent 10
Reinvestment Privilege 11
Purchases with Proceeds from Redemptions
of Unaffiliated Investment Company
Shares 11
Concurrent Purchases 11
Systematic Investment Program 11
Certificates and Confirmations 12
Dividends and Distributions 12
EXCHANGE PRIVILEGE 12
- ------------------------------------------------------
Reduced Sales Charge 12
Requirements for Exchange 12
Tax Consequences 13
Making an Exchange 13
Telephone Instructions 13
REDEEMING CLASS A SHARES 13
- ------------------------------------------------------
Through a Financial Institution 14
Directly From the Fund 14
By Telephone 14
By Mail 14
Signatures 14
Contingent Deferred Sales Charge 15
Systematic Withdrawal Program 15
Accounts with Low Balances 16
FUND INFORMATION 16
- ------------------------------------------------------
Management of the Fund 16
Board of Directors 16
Officers and Directors 16
Investment Adviser 19
Advisory Fees 19
Adviser's Background 19
Other Payments to Financial Institutions 20
Distribution of Class A Shares 20
Administration of the Fund 20
Administrative Services 20
Shareholder Services Plan 21
Custodian 21
Transfer Agent and Dividend
Disbursing Agent 21
Legal Counsel 21
Independent Auditors 21
SHAREHOLDER INFORMATION 22
- ------------------------------------------------------
Voting Rights 22
TAX INFORMATION 22
- ------------------------------------------------------
Federal Income Tax 22
Pennsylvania Corporate and
Personal Property Taxes 23
PERFORMANCE INFORMATION 23
- ------------------------------------------------------
OTHER CLASSES OF SHARES 24
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS C SHARES 25
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1).............................................. 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee........................................................................................... 0.59%
12b-1 Fee................................................................................................ None
Total Other Expenses..................................................................................... 0.25%
Shareholder Services Fee (2)................................................................ 0.04%
Total Class A Shares Operating Expenses.............................................................. 0.84%
</TABLE>
- ---------
(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of a mutual fund sold with a sales charge and not distributed by
Federated Securities Corp., prior to June 1, 1994, will be charged a
contingent deferred sales charge by the Fund's distributor of .50 of 1%
for redemptions made within one year of purchase. See "Contingent Deferred
Sales Charge."
(2) The maximum Shareholder Services Fee is 0.25%.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS A SHARES" AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You 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....... $ 53 $ 71 $ 89 $ 144
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Class A Shares of the Fund. The Fund also offers two additional classes of
shares called Class B Shares and Class C Shares. Class A Shares, Class B Shares,
and Class C Shares are subject to certain of the same expenses. However, Class B
Shares are subject to a 12b-1 fee of 0.75% and a maximum contingent deferred
sales charge of 3.00%, but are not subject to a sales load. Class C Shares are
subject to a 12b-1 fee of 0.75% and a contingent deferred sales charge of 1.00%,
but are not subject to a sales load. See "Other Classes of Shares."
LIBERTY MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent auditors. Their report dated May 13, 1994 on the Fund's financial
statements for the year ended March 31, 1994 is included in the Annual Report
dated March 31, 1994, which is incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91 $ 8.51
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.66 0.66 0.67 0.71 0.72 0.72 0.73 0.75 0.80 0.40
- --------------------
Net realized and
unrealized
gain/(loss)
on investments (0.40) 0.64 0.37 0.14 0.21 0.23 (0.77) 0.29 1.60 0.40
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations 0.26 1.30 1.04 0.85 0.93 0.95 (0.04) 1.04 2.40 0.80
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.66) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80) (0.40)
- --------------------
Distributions to
shareholders from
net realized gain
on investment
transactions (0.02) -- -- -- -- -- -- -- -- --
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Distributios (0.68) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80) (0.40)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END
OF PERIOD $ 11.20 $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 2.10% 12.13% 10.05% 8.42% 9.20% 9.76% (0.17%) 10.28% 28.25% 9.49%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.84% 0.80% 0.84% 0.89% 0.90% 0.95% 0.95% 0.95% 0.93% 1.04%(b)
- --------------------
Net investment
income 5.59% 5.81% 6.17% 6.77% 6.80% 7.07% 7.28% 7.07% 8.39% 9.09%(b)
- --------------------
Expense waiver/
reimbursement(a) -- -- -- -- -- -- -- -- 0.23% 0.30%(b)
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $714,384 $706,126 $590,118 $511,611 $474,797 $440,445 $388,916 $424,655 $248,710 $105,664
- --------------------
Portfolio turnover
rate 27% 13% 8% 45% 25% 58% 55% 13% 2% 1%
- --------------------
<CAPTION>
SEPT. 30,
1984
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.20
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.80
- --------------------
Net realized and
unrealized
gain/(loss)
on investments (0.69)
- -------------------- ---------
Total from
investment
operations 0.11
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.80)
- --------------------
Distributions to
shareholders from
net realized gain
on investment
transactions --
- -------------------- ---------
Total Distributions (0.80)
- -------------------- ---------
NET ASSET VALUE, END
OF PERIOD $ 8.51
- -------------------- ---------
TOTAL RETURN** 1.23%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 1.14%
- --------------------
Net investment
income 9.00%
- --------------------
Expense waiver/
reimbursement(a) 0.28%
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $47,652
- --------------------
Portfolio turnover
rate 28%
- --------------------
</TABLE>
* For the six months ended March 31, 1985. The Fund changed its fiscal
year-end from September 30 to March 31, effective March 1, 1985.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on September
10, 1976. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors ("Directors") has established three classes of shares,
known as Class A Shares, Class B Shares,and Class C Shares. This prospectus
relates only to the Class A Shares ("Shares") of the Fund.
Class A Shares of the Fund are designed primarily for individuals and
institutions as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio primarily limited to municipal
bonds. A minimum initial investment of $500 is required.
Class A Shares are sold at net asset value plus an applicable sales charge and
are redeemed at net asset value. However, a redemption fee is imposed on certain
Shares. For a more complete description, see "Redeeming Class A Shares."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Liberty Family Funds."
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
_ Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
_ Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
_ International Equity Fund, providing long-term capital growth and income
through international securities;
_ International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
_ Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
_ Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
_ Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
_ Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
_ Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
_ Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
_ Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
_ Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
_ Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
_ Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
_ World Utility Fund, providing total return through securities issued by
domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of a proven, professional investment adviser.
Shareholders of Class A Shares participating in The Liberty Account, are
designated as Liberty Life Members. Liberty Life Members are exempt from sales
charges on future purchases in and exchanges between the Class A Shares of any
funds in the Liberty Family of Funds, as long as they maintain a $500 balance in
one of the Liberty Funds.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide for its shareholders a high
level of current income which is exempt from federal regular income tax.
Interest income of the Fund that is exempt from federal income tax retains its
tax-free status when distributed to the Fund's shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus. The
investment objective and the policies and limitations described below cannot be
changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
at least 65% of its portfolio in municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states, territories, and possessions of
the United States, including the District of Columbia, and their political
subdivisions, agencies, and instrumentalities, the interest from which is exempt
from federal regular income tax.
CHARACTERISTICS. The municipal bonds which the Fund buys have the same
characteristics assigned by Moody's Investors Service, Inc. and Standard &
Poor's Corporation to bonds of investment grade quality or better. However,
the Fund is not restricted to buying rated securities. Medium investment
grade quality bonds are rated A and Baa by Moody's or A and BBB by Standard
& Poor's. In certain cases the Fund's adviser may choose bonds which are
unrated if it judges the bonds to have the same characteristics as medium
quality bonds (i.e., an adequate but not outstanding capacity to service
their debt). Bonds rated "BBB" by Standard & Poor's or "Baa" by Moody's
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to weaken capacity to make principal and
interest payments than higher rated bonds. There is no limit to portfolio
maturity. A description of the ratings categories is contained in the
Appendix to the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase municipal
bonds on a when-issued or delayed delivery basis. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. The Fund's investment
adviser has adopted an operating policy, which can be changed by the Board of
Directors, that investments in such securities will be limited to 20% of the
Fund's assets.
TEMPORARY INVESTMENTS. The Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax. However, from
time to time on a temporary basis, or when the investment adviser determines
that market conditions call for a temporary defensive posture, the Fund may
invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment agrees at
the time of sale to repurchase it at a mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality. The Fund intends to invest no more than 20% of its assets in
temporary investments.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.
MUNICIPAL BONDS
Municipal bonds are generally issued to finance public works, such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make loans to
other public institutions and facilities.
Municipal bonds include industrial development bonds issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith and credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue bonds, however, are payable only
from the revenue generated by the facility financed by the bond or other
specified sources of revenue. Revenue bonds do not represent a pledge of credit
or create any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically classified as
revenue bonds.
Municipal Bonds may carry fixed, floating or inverse floating rates of interest.
Fixed rate bonds bear interest at the same rate from issuance until maturity.
The interest rate on floating rate bonds is subject to adjustment based upon
changes in market interest rates or indices, such as a bank's prime rate or a
published market index. The interest rate may be adjusted at specified intervals
or immediately upon any change in the applicable index rate. The interest rate
for most floating rate bonds varies directly with changes in the index rate, so
that the market value of the bond will approximate its stated value at the time
of each adjustment. However, inverse floating rate bonds have interest rates
that vary inversely with changes in the applicable index rate, such that the
bond's interest rate rises when market interest rates fall and fall when market
rates rise. The market value of floating rate bonds is less sensitive than fixed
rate bonds to changes in market interest rates. In contrast, the market value of
inverse floating rate bonds is more sensitive to market rate changes than fixed
or floating rate bonds. The affect of market rate changes on bonds depends upon
a variety of factors, including market expectations as to future changes in
interest rates and, in the case of floating and inverse floating rate bonds, the
frequency with which the interest rate is adjusted and the multiple of the index
rate used in making the adjustment.
Most municipal bonds pay interest in arrears on a semiannual or more frequent
basis. However, certain bonds, variously known as capital appreciation bonds or
zero coupon bonds, do not provide for any interest payments prior to maturity.
Such bonds are normally sold at a discount from their stated value,
or provide for periodic increases in their stated value to reflect a compounded
interest rate. The market value of these bonds is also more sensitive to changes
in market interest rates than bonds that provide for current interest payments.
The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory,
or possession of the United States.
The Fund will not generally invest more than 25% of its total assets in any one
industry. Governmental issuers of municipal securities are not considered part
of any "industry." However, municipal securities backed only by the assets and
revenues of nongovernmental users may, for this purpose, be deemed to be related
to the industry in which such nongovernmental users engage, and the 25%
limitation would apply to such obligations. It is nonetheless possible that the
Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations or airport revenue
obligations. This would be the case only if the Fund determines that the yields
available from obligations in a particular segment of the market justified the
additional risks associated with a large investment in such segment. Although
such obligations could be supported by the credit of governmental users or by
the credit of nongovernmental users engaged in a number of industries, economic,
business, political and other developments generally affecting the revenues of
such users (for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors affecting the demand
for their services or products) may have a general adverse effect on all
municipal securities in such a market segment. The Fund reserves the right to
invest more than 25% of its assets in industrial development bonds or private
activity bonds or in securities of issuers located in the same state, however,
it has no present intention to do so.
INVESTMENT RISKS
Yields on municipal bonds depend on a variety of factors, including: the general
conditions of the money market and the taxable and municipal bond markets; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. The ability of the Fund to achieve its investment objective also
depends on the continuing ability of the issuers of municipal bonds to meet
their obligations for the payment of interest and principal when due. The prices
of municipal bonds fluctuate inversely in relation to the direction of interest
rates. The prices of longer term bonds fluctuate more widely in response to
market interest rate changes.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money or pledge securities except, under certain circumstances, the
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;
invest more than 5% of its total assets in securities of one issuer
(except cash and cash items and U.S. government obligations); or
invest more than 10% of its total assets in municipal bonds subject to
legal or contractual restrictions on resale, including repurchase
agreements maturing in more than seven days.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or
invest more than 10% of its net assets in illiquid securities, including
restricted securities which the adviser believes cannot be sold within
seven days and repurchase agreements maturing in more than seven days.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class A Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class A Shares in the liabilities of the Fund and those attributable to the
Class A Shares, and dividing the remainder by the total number of Class A Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class B Shares and C Shares due to the variance in daily net income realized by
each class. Such variance will reflect only accrued net income to which the
shareholders of a particular class are entitled.
INVESTING IN CLASS A SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.
once an account has been established. In connection with the sale of Fund
shares, Federated Securities Corp. may from time to time offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order or when converted into Federal Funds. Purchase
orders through a registered broker/dealer must be received by the broker before
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Fund
before 5:00 p.m. (Eastern time) in order for shares to be purchased at that
day's price. Purchase orders through other financial institutions must be
received by the financial institution and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. _An investor may place an order to purchase
Shares directly from Federated Securities Corp. once an account has been
established. To do so:
_ complete and sign the new account form available from the Fund;
_ enclose a check made payable to Liberty Municipal Securities Fund,
Inc.--Class B Shares; and
_ mail both to Federated Services Company, P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire, call the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Services Company c/o State Street Bank and Trust
Company, Boston, Massachusetts 02105; Attention: Mutual Fund Servicing Division;
For Credit to: Fund for U.S. Government Securities, Inc.--Class A Shares; Title
or Name of Account; Wire Order Number and/or Account Number. Shares cannot be
purchased by wire on Columbus Day, Veteran's Day or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $500. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
Less than $100,000 % 4.50 % 4.71
$100,000 but less than $250,000 % 3.75 % 3.90
$250,000 but less than $500,000 % 2.50 % 2.56
$500,000 but less than $750,000 % 2.00 % 2.04
$750,000 but less than $1 million % 1.00 % 1.01
$1 million or more % 0.00 % 0.00
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Liberty Life Members are exempt from sales charges.
No sales charge is imposed for Fund shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or
its affiliates. However, investors who purchase Shares through a trust
department or investment adviser may be charged an additional service fee by
that institution.
DEALER CONCESSION. For sales of Shares a dealer will normally receive up to 90%
of the applicable sales charge. Any portion of the sales charge which is not
paid to the dealer will be retained by the Distributor. However, the distributor
may offer to pay dealers up to one-hundred percent of the sales load retained by
it. Such payments may take the form of promotional incentives, such as payment
of certain expenses of qualified employees and their spouses to attend
informational meetings about the Fund or other special events at
recreational-type facilities, or of items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales charge; however, the distributor will make
twelve monthly payments to the dealer totaling 0.25% of the public offering
price over the first year of the purchase. Such payments are based on the
original purchase price of Shares outstanding at each month end.
The sales charge for Shares sold other than through registered broker/dealers
will be retained by Federated Securities Corp. Federated Securities Corp. may
pay fees to banks out of the sales charge in exchange for sales and/or
administrative services performed on behalf of the bank's customers in
connection with the initiation of customer accounts and purchases of Shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege;
purchases with proceeds from redemptions of unaffiliated mutual fund
shares; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine purchases
of Shares made on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at one
time by a trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $90,000 and he
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 3.75%,
not 4.50%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the purchase is made that Shares are already owned or that purchases are
being combined. The Fund will reduce the sales charge after it confirms the
purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
Shares in the funds in the Liberty Family of Funds over the next 13 months, the
sales charge may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales charge adjustment depending on
the amount actually purchased within the 13-month period and a provision for the
custodian to hold 4.5% of the total amount intended to be purchased in escrow
(in shares) until such purchase is completed.
The 4.5% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed Shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase Shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days
towards the dollar fulfillment of the letter of intent. Prior trade prices will
not be adjusted.
REINVESTMENT PRIVILEGE. If Shares have been redeemed, the shareholder has a
one-time right, within 120 days, to reinvest the redemption proceeds at the
next-determined net asset value without any sales charge. Federated Securities
Corp. must be notified by the shareholder in writing or by his financial
institution of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his Shares, there may be tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANY
SHARES.
Investors may purchase Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which were
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. (This does not include shares of mutual funds which were or
would be subject to a contingent deferred sales charge upon redemption.) The
purchase must be made within 60 days of the redemption, and Federated Securities
Corp. must be notified by the investor in writing, or by his financial
institution, at the time the purchase is made.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in the Liberty Family of Funds, the purchase price of which includes a
sales charge. For example, if a shareholder concurrently invested $30,000 in one
of the other Liberty Funds with a sales charge, and $70,000 in Shares of this
Fund, the sales charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales charge
after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by Federated Services Company, plus the applicable sales charge. A
shareholder may apply for participation in this program through his financial
institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions of any net realized
long-term capital gains will be made at least once every twelve months.
Dividends and distributions are automatically reinvested on payment dates in
additional Shares of the Fund at ex-dividend date net asset value without a
sales charge, unless shareholders request cash payments on a new account form or
by writing to the transfer agent.
Shares purchased through a financial institution, for which payment by wire is
received by the transfer agent on the business day following the order, begin to
earn dividends on the day the wire payment is received. Otherwise, shares
purchased by wire begin to earn dividends on the business day after wire payment
is received by the transfer agent. Shares purchased by mail, or through a
financial institution, if the financial institution's payment is by check, begin
to earn dividends on the second business day after the check is received by the
transfer agent.
Shares earn dividends through the business day that proper written redemption
instructions are received by the transfer agent.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain funds which are advised by
subsidiaries or affiliates of Federated Investors funds which are sold with a
sales charge different from that of the Fund's or with no sales charge for which
affiliates of Federated Investors serve as principal underwriter ("Federated
Funds"). These exchanges are made at net asset value plus the difference between
the Fund's sales charge already paid and any sales charge of the fund into which
the Shares are to be exchanged, if higher. Neither the Fund nor any of the funds
in the Liberty Family of Funds imposes any additional fees on exchanges.
REDUCED SALES CHARGE
If a shareholder making such an exchange qualifies for a reduction of the sales
charge, Federated Securities Corp. must be notified by the shareholder in
writing or by his financial institution.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Class A Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds ("Federated Funds") may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Services Company, P.O. Box 8604, Boston, Massachusetts
02266-8604.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. Telephone exchange instructions may be recorded. If the
instructions are given by a broker, a telephone authorization form completed by
the broker must be on file with the Fund. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions may be recorded. Such instructions will be
processed as of 4:00 p.m. (Eastern time) and must be received by the Fund before
that time for Shares to be exchanged the same day. Shareholders exchanging into
a Fund will not receive any dividend that is payable to shareholders of record
on that date. This privilege may be modified or terminated at any time.
REDEEMING CLASS A SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge, next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemptions can be made through a financial institution or directly
from the Fund. Redemption requests must be received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value, less any applicable contingent deferred
sales charge, next determined after the Fund receives the redemption request
from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. Telephone
redemption instructions may be recorded. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. The minimum amount for a wire transfer is $1,000. If at any time,
the Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the transfer agent to accept telephone requests
must first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company. The written request should include the shareholder's
name, the Fund name and class designation, the account number, and the Share or
dollar amount requested, and should be signed exactly as Shares are registered.
If Share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares with the proceeds of a redemption of shares of
a mutual fund sold with a sales charge and not distributed by Federated
Securities Corp. prior to June 1, 1994, will be charged a contingent deferred
sales charge by the Fund's distributor of 0.50 of 1% for redemptions made within
one year of purchase. Purchases under the program made after that date will not
be subject to any type of contingent deferred sales charge. The contingent
deferred sales charge will be calculated based upon the lesser of the original
purchase price of the shares or the net asset value of the Shares when redeemed.
The contingent deferred sales charge will not be imposed on Shares acquired
through reinvestment of dividends or distributions of long-term capital gains.
Redemptions are deemed to have occurred in the following order: (i) Shares
acquired through the reinvestment of dividends and long-term capital gains, (ii)
purchases of Shares occurring more than one year before the date of redemption,
(iii) purchases of Shares within the previous year without the use of redemption
proceeds as described above, and (iv) purchases of Shares within the previous
year through the use of redemption proceeds as described above.
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family Funds or in
connection with redemptions by the Fund of accounts with low balances.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through
his financial institution. Due to the fact that Shares are sold with a sales
charge, it is not advisable for shareholders to be purchasing Shares while
participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $500. This requirement
does not apply, however, if the balance falls below $500 because of changes in
the Fund's net asset value. Before Shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
Shares to meet the minimum requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
of the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Securities Corp., Federated
Services Company, Federated Administrative Services, and the Funds (as defined
in the Combined Statement of Additional Information).
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Director Trustee, Federated Advisers, Federated Management, and
Tower Federated Research; Director, AEtnaLife and Casualty
Pittsburgh, PA Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, President and Director of
the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior
Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood and General Partner or Trustee in private
Associates, Inc., real estate ventures in Southwest Florida; Director,
Realtors Trustee, or Managing General Partner of the Funds; formerly,
3255 Tamiami Trail North President, Naples Property Management, Inc.
Naples, FL
</TABLE>
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc., and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General Partner
of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth
225 Franklin Street of Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly, President, State Street Bank
and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
</TABLE>
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Manangement
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of
the Funds; President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council for Environ-
mental Policy and Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue* President and President and Trustee, Federated Investors and Federated
Federated Investors Director Administrative Services; Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; President or
Pittsburgh, PA Vice President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds. Mr. Donahue is the son
of John F. Donahue, Chairman and Director of the Fund.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Chairman and Director, Federated Securities Corp.; President
Tower or Vice President of the Funds; Director or Trustee of some
Pittsburgh, PA of the Funds.
Edward C. Gonzales* Vice President and Vice President, Treasurer, and Trustee, Federated In-
Federated Investors Treasurer vestors; Vice President and Treasurer, Federated Advisers,
Tower Federated Management, and Federated Research; Executive Vice
Pittsburgh, PA President, Treasurer, and Director, Federated Securities
Corp.; Trustee, Federated Services Company, Chairman,
Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
</TABLE>
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John W. McGonigle Vice President and Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Secretary Federated Investors; Vice President, Secretary, and Trustee,
Tower Federated Advisers, Federated Management, and Federated
Pittsburgh, PA Research; Trustee, Federated Services Company, Executive
Vice President, Secretary, and Trustee, Federated
Administrative Services; Director and Executive Vice
President, Federated Securities Corp.; Vice President and
Secretary of the Funds.
John A. Staley, IV* Vice President Vice President and Trustee, Federated Investors; Executive
Federated Investors Vice President, Federated Securities Corp.; President and
Tower Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of the Funds; formerly,
Vice President, The Standard Fire Insurance Company and
President of its Federated Research Division.
</TABLE>
*This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940.
\Member of the Fund's Exectutive Committee. The Exectutive Committee of the
Board of Directors handles the responsibilites of the Board of Directors
between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .30 of 1% of the Fund's average daily net assets, plus 4.5% of
the Fund's annual gross income, (excluding any capital gains or losses.)
The adviser may voluntarily choose to waive a portion of its fee or
reimburse the Funds for certain operating expenses. The adviser can
terminate this voluntary waiver of its advisory fee at any time at its sole
discretion. The adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Jonathan C. Conley has been the Fund's portfolio manager since October,
1984. Mr. Conley joined Federated Investors in 1979 and has been a Vice
President of the Fund's investment adviser since 1982. Mr. Conley is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Virginia.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
financial institutions may be compensated by the adviser or its affiliates
for the continuing investment of customers' assets in certain funds,
including the Fund, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be
made from the assets of the Fund or by the assessment of a sales charge on
Shares. Furthermore, the Adviser or its affiliates may offer to pay a fee
from their own assets to financial institutions as financial assistance for
providing substantial marketing, sales and operational support to the
distributor. The support may include sponsoring sales, educational and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the
dealer sells or may sell, and/or upon the type and nature of sales or
operational support furnished by the dealer.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. _Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all Federated Funds as specified
below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. _The Fund has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net assets of the Class A Shares to obtain certain personal
services for shareholders and the maintenance of shareholder accounts
("shareholder services"). The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to perform
shareholder services. Financial institutions will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from the interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state laws.
CUSTODIAN. State Street Bank and Trust Company, Box 8604, Boston, Massachusetts
02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604 is transfer agent for the Shares of
the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Shareholders are not required to pay federal income tax on any dividends
received from the Fund that represent net interest on tax-exempt municipal
bonds. However, under the Tax Reform Act of 1986, dividends representing net
interest income earned on some municipal bonds may be included in calculating
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide benefits to
private parties. The Fund may purchase all types of municipal bonds, including
private activity bonds. Thus, should it purchase any such bonds, a portion of
the Fund's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their Shares.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return, yield, and
tax-equivalent yield for Class A Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Class A Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
A Shares over a thirty-day period by the maximum offering price per share of
Class A Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The tax-equivalent yield of Class A Shares is
calculated similarly to the yield but is adjusted to reflect the taxable yield
that Class A Shares would have had to earn to equal its actual yield, assuming a
specific tax rate. The yield and the tax-equivalent yield do not necessarily
reflect income actually earned Class A Shares and therefore, may not correlate
to the dividends or other distributions paid to shareholders.
- --------------------------------------------------------------------------------
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return, yield, and tax-equivalent yield.
Total return, yield and tax-equivalent yield will be calculated separately for
Class A Shares, Class B Shares, and Class C Shares. Because Class B Shares and
Class C Shares are subject to Rule 12b-1 fees and Services Plan Fees, the yield
and tax-equivalent yield for Class A Shares, for the same period, may exceed
that of Class B Shares and Class C Shares. Depending on the dollar amount
invested, and the time period for which any particular class of shares is held,
the total return for any particular class may exceed that of another.
From time to time the Fund may advertise the performance of Class A Shares,
Class B Shares, and Class C Shares using certain financial publications and/or
compare the performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund currently offers Class A Shares, Class B Shares, and Class C Shares.
Class B Shares are sold primarily to customers of financial institutions subject
to certain contingent deferred sales charges. Class B Shares are distributed
pursuant to a 12b-1 Plan adopted by the Fund whereby the distributor is paid a
fee up to 0.75 of 1%. The Fund has also adopted a Services Plan Fee of up to
0.25 of 1% of the Class B Shares' average daily net assets with respect to Class
B Shares. Investments in Class B Shares are subject to a minimum initial
investment of $1,500.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales charge; however, Class C Shares are subject to
a contingent deferred sales charge of up to 1.00%. Class C Shares are
distributed pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the
distributor is paid a fee of up to 0.75 of 1% in addition to a shareholder
services fee of up to 0.25 of 1% of the Class C Shares' average daily net
assets. Investments in Class C Shares are subject to a minimum initial
investment of $1,500.
The amount of dividends payable to Class A Shares will generally exceed that of
Class B Shares, Class C Shares by the difference between Class Expenses borne by
shares of each respective class.
The stated advisory fee is the same for all classes of shares.
- --------------------------------------------------------------------------------
LIBERTY MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent auditors. Their report dated May 13, 1994 on the Fund's financial
statements for the year ended March 31, 1994 is included in the Annual Report
dated March 31, 1994, which is incorporated by reference.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.70
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.52
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.48)
- --------------------------------------------------------------------------------------------- -------------------
Total from investment operations 0.04
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.52)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain
on investment transactions (0.02)
- --------------------------------------------------------------------------------------------- -------------------
TOTAL DISTRIBUTIONS (0.54)
- --------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 11.20
- --------------------------------------------------------------------------------------------- -------------------
TOTAL RETURN** 0.17%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.80%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 4.70%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 22,066
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 27%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 20, 1993 (date of initial
public offering) to
March 31, 1994.
** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY MUNICIPAL
SECURITIES FUND, INC.
CLASS A SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
August __, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8042830A-A (8/94)
LIBERTY MUNICIPAL SECURITIES FUND, INC.
CLASS B SHARES
PROSPECTUS
The Class B Shares of Liberty Municipal Securities Fund, Inc. (the "Fund")
represent interests in an open-end, diversified management investment company (a
mutual fund) with an investment objective of providing its shareholders a high
level of current income which is exempt from federal regular income tax by
investing in a professionally managed, diversified portfolio primarily limited
to municipal bonds.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Class B Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A, Class B, and Class C Shares dated August , 1994, with the Securities and
Exchange Commission. The information contained in the Combined Statement of
Additional Information is incorporated by reference in this prospectus. You may
request a copy of the Combined Statement of Additional Information free of
charge by calling 1-800-235-4669. To obtain other information or make inquiries
about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated August , 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 2
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Characteristics 4
When-Issued and Delayed Delivery
Transactions 4
Temporary Investments 4
Portfolio Turnover 4
Municipal Bonds 5
Investment Risks 6
Investment Limitations 6
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN CLASS B SHARES 7
- ------------------------------------------------------
Share Purchases 7
Through a Financial Institution 7
Directly from the Distributor 8
Minimum Investment Required 8
What Shares Cost 8
Conversion of Class B Shares 8
Systematic Investment Program 9
Certificates and Confirmations 9
Dividends and Distributions 9
EXCHANGE PRIVILEGE 10
- ------------------------------------------------------
Requirements for Exchange 10
Tax Consequences 10
Making an Exchange 10
Telephone Instructions 10
REDEEMING CLASS B SHARES 11
- ------------------------------------------------------
Through a Financial Institution 11
Directly From the Fund 11
By Telephone 11
By Mail 12
Signatures 12
Contingent Deferred Sales Change 12
Elimination of Contingent Deferred
Sales Charge 13
Systematic Withdrawal Program 13
Accounts with Low Balances 14
FUND INFORMATION 14
- ------------------------------------------------------
Management of the Fund 14
Board of Directors 14
Officers and Directors 14
Investment Adviser 17
Advisory Fees 18
Adviser's Background 18
Distribution of Class B Shares 18
Distribution and Shareholder
Services Plans 18
Other Payments to Financial Institutions 19
Administration of the Fund 19
Administrative Services 19
Custodian 20
Transfer Agent and Dividend
Disbursing Agent 20
Legal Counsel 20
Independent Auditors 20
Expenses of the Fund and Class B Shares 20
SHAREHOLDER INFORMATION 21
- ------------------------------------------------------
Voting Rights 21
TAX INFORMATION 21
- ------------------------------------------------------
Federal Income Tax 21
Pennsylvania Corporate and
Personal Property Taxes 22
PERFORMANCE INFORMATION 22
- ------------------------------------------------------
OTHER CLASSES OF SHARES 23
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS A SHARES 24
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS C SHARES 25
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)...................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable) (1).................................................. 3.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).......................................... None
Exchange Fee................................................................................................ None
ANNUAL CLASS B SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee.............................................................................................. 0.59%
12b-1 Fee................................................................................................... 0.75%
Total Other Expenses........................................................................................ 0.46%
Shareholder Services Fee..................................................................... 0.25%
Total Class B Shares Operating Expenses (2)........................................................ 1.80%
</TABLE>
- ---------
(1) The contingent deferred sales charge is imposed on the lesser of the net
asset value of the redeemed shares at the time of purchase or the net asset
value of the redeemed shares at the time of redemption at the rates of 3%
for shares redeemed within one year of the purchase date, 2% for shares
redeemed within two years of the pruchase date, and 1% for shares redeemed
within three years of the purchase date. No contingent deferred sales charge
is imposed on shares redeemed more than three years from the purchase date.
(2) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately seven years after purchase.
* Total Class B Shares Operating expenses are estimated based on average
expenses expected to be incurred during the period ending March 31, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS B SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS B SHARES" AND "FUND
INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO
ADDITIONAL FEES.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You 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.................................................. $ 49 $ 68
You would pay the following on the same investments,
assuming no redemption......................................................................... $ 18 $ 57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING MARCH 31,
1995.
The information set forth in the foregoing table and example relates only to
Class B Shares of the Fund. The Fund also offers two additional classes of
shares called Class A Shares and Class C Shares. Class A Shares, Class B Shares,
and Class C Shares are subject to certain of the same expenses. However, Class A
Shares are subject to a maximum sales load of 4.50%, but are not subject to a
contingent deferred sales charge or a 12b-1 fee. Class C Shares are subject to a
12b-1 fee of 0.75% and a contingent deferred sales charge of 1.00%, but are not
subject to a sales load. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on September
10, 1976. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors ("Directors") has established three classes of shares,
known as Class A Shares, Class B Shares, and Class C Shares. This prospectus
relates only to the Class B Shares ("Shares") of the Fund.
Class B Shares of the Fund are designed primarily for individuals and
institutions as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio primarily limited to municipal
bonds. A minimum initial investment of $1,500 is required.
Except as otherwise noted in this prospectus, Class B Shares are sold at net
asset value and are redeemed at net asset value. However, a contingent deferred
sales charge is imposed on certain shares which are redeemed within three full
years of purchase. For a more complete description, see "Redeeming Class B
Shares."
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Liberty Family Funds."
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
.American Leaders Fund, Inc.--providing growth of capital and income
through high-quality stocks;
.Capital Growth Fund (Liberty Shares class only)--providing appreciation
of capital primarily through equity securities;
.Fund for U.S. Government Securities, Inc.--providing current income
through long-term U.S. government securities;
.International Equity Fund--providing long-term capital growth and income
through international securities;
.International Income Fund--providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
.Liberty Equity Income Fund, Inc.--providing above-average income and
capital appreciation through income-producing equity securities;
.Liberty High Income Bond Fund, Inc.--providing high current income
through high-yielding, lower-rated, corporate bonds;
.Liberty U.S. Government Money Market Trust--providing current income
consistent with stability of principal through high quality U.S.
government securities;
.Liberty Utility Fund, Inc.--providing current income and long-term growth
of income, primarily through electric, gas and communication utilities;
.Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
.Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation of
principal, primarily limited to municipal securities;
.Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
.Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
.Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations;
.Tax-Free Instruments Trust--providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
.World Utility Fund, providing total return through securities issued by
domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of a proven, professional investment adviser.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide for its shareholders a high
level of current income which is exempt from federal regular income tax.
Interest income of the Fund that is exempt from federal income tax retains its
tax-free status when distributed to the Fund's shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus. The
investment objective and the policies and limitations described below cannot be
changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
at least 65% of its portfolio in municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states,
territories, and possessions of the United States, including the District of
Columbia, and their political subdivisions, agencies, and instrumentalities, the
interest from which is exempt from federal regular income tax.
CHARACTERISTICS. The municipal bonds which the Fund buys have the same
characteristics assigned by Moody's Investors Service, Inc. and Standard &
Poor's Corporation to bonds of investment grade quality or better. However,
the Fund is not restricted to buying rated securities. Medium investment
grade quality bonds are rated A and Baa by Moody's or A and BBB by Standard
& Poor's. In certain cases the Fund's adviser may choose bonds which are
unrated if it judges the bonds to have the same characteristics as medium
quality bonds (i.e., an adequate but not outstanding capacity to service
their debt). Bonds rated "BBB" by Standard & Poor's or "Baa" by Moody's
have speculative characteristics. Changes in economic conditions or other
circumstances are more likely to weakened capacity to make principal and
interest payments than higher rated bonds. There is no limit to portfolio
maturity. A description of the ratings categories is contained in the
Appendix to the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase municipal
bonds on a when-issued or delayed delivery basis. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. The Fund's investment
adviser has adopted an operating policy, which can be changed by the Board of
Directors, that investments in such securities will be limited to 20% of the
Fund's assets.
TEMPORARY INVESTMENTS. The Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax. However, from
time to time on a temporary basis, or when the investment adviser determines
that market conditions call for a temporary defensive posture, the Fund may
invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment agrees at
the time of sale to repurchase it at a mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality. The Fund intends to invest no more than 20% of its assets in
temporary investments.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.
MUNICIPAL BONDS
Municipal bonds are generally issued to finance public works, such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make loans to
other public institutions and facilities.
Municipal bonds include industrial development bonds issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith and credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue bonds, however, are payable only
from the revenue generated by the facility financed by the bond or other
specified sources of revenue. Revenue bonds do not represent a pledge of credit
or create any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically classified as
revenue bonds.
Municipal Bonds may carry fixed, floating or inverse floating rates of interest.
Fixed rate bonds bear interest at the same rate from issuance until maturity.
The interest rate on floating rate bonds is subject to adjustment based upon
changes in market interest rates or indices, such as a bank's prime rate or a
published market index. The interest rate may be adjusted at specified intervals
or immediately upon any change in the applicable index rate. The interest rate
for most floating rate bonds varies directly with changes in the index rate, so
that the market value of the bond will approximate its stated value at the time
of each adjustment. However, inverse floating rate bonds have interest rates
that vary inversely with changes in the applicable index rate, such that the
bond's interest rate rises when market interest rates fall and fall when market
rates rise. The market value of floating rate bonds is less sensitive than fixed
rate bonds to changes in market interest rates. In contrast, the market value of
inverse floating rate bonds is more sensitive to market rate changes than fixed
or floating rate bonds. The affect of market rate changes on bonds depends upon
a variety of factors, including market expectations as to future changes in
interest rates and, in the case of floating and inverse floating rate bonds, the
frequency with which the interest rate is adjusted and the multiple of the index
rate used in making the adjustment.
Most municipal bonds pay interest in arrears on a semiannual or more frequent
basis. However, certain bonds, variously known as capital appreciation bonds or
zero coupon bonds, do not provide for any interest payments prior to maturity.
Such bonds are normally sold at a discount from their stated value, or provide
for periodic increases in their stated value to reflect a compounded interest
rate. The market value of these bonds is also more sensitive to changes in
market interest rates than bonds that provide for current interest payments.
The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory,
or possession of the United States.
The Fund will not generally invest more than 25% of its total assets in any one
industry. Governmental issuers of municipal securities are not considered part
of any "industry." However, municipal securities backed only by the assets and
revenues of nongovernmental users may, for this purpose, be deemed to be related
to the industry in which such nongovernmental users engage, and the 25%
limitation would apply to such obligations. It is nonetheless possible that the
Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations or airport revenue
obligations. This would be the case only if the Fund determines that the yields
available from obligations in a particular segment of the market justified the
additional risks associated with a large investment in such segment. Although
such obligations could be supported by the credit of governmental users or by
the credit of nongovernmental users engaged in a number of industries, economic,
business, political and other developments generally affecting the revenues of
such users (for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors affecting the demand
for their services or products) may have a general adverse effect on all
municipal securities in such a market segment. The Fund reserves the right to
invest more than 25% of its assets in industrial development bonds or private
activity bonds or in securities of issuers located in the same state, however,
it has no present intention to do so.
INVESTMENT RISKS
Yields on municipal bonds depend on a variety of factors, including: the general
conditions of the money market and the taxable and municipal bond markets; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. The ability of the Fund to achieve its investment objective also
depends on the continuing ability of the issuers of municipal bonds to meet
their obligations for the payment of interest and principal when due. The prices
of municipal bonds fluctuate inversely in relation to the direction of interest
rates. The prices of longer term bonds fluctuate more widely in response to
market interest rate changes.
INVESTMENT LIMITATIONS
The Fund will not:
.borrow money or pledge securities except, under certain circumstances,
the 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;
.invest more than 5% of its total assets in securities of one issuer
(except cash and cash items and U.S. government obligations); or
.invest more than 10% of its total assets in municipal bonds subject to
legal or contractual restrictions on resale, including repurchase
agreements maturing in more than seven days.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
.invest more than 5% of its total assets in securities of issuers that
have records of less than three years of continuous operations; or
.invest more than 10% of its net assets in illiquid securities, including
restricted securities which the adviser believes cannot be sold within
seven days and repurchase agreements maturing in more than seven days.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class B Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class B Shares in the liabilities of the Fund and those attributable to the
Class B Shares, and dividing the remainder by the total number of Class B Shares
outstanding. The net asset value for Class B Shares may differ from that of
Class A Shares and Class C Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN CLASS B SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.
once an account has been established. In connection with the sale of Fund
shares, Federated Securities Corp. may from time to time offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 P.M. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from Federated Securities Corp. once an account has been
established. To do so:
.complete and sign the new account form available from the Fund;
.enclose a check made payable to Federated Services Company--Class B
Shares; and
.mail both to Federated Services Company, P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank andTrust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire, call the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Services Company, c/o State Street Bank and Trust
Company, Boston, Massachusetts 02105; Attention: Mutual Fund Servicing Division;
For Credit to: Fund for U.S. Government Securities, Inc.--Class B Shares; Title
or Name of Account; Wire Order Number and/or Account Number. Shares cannot be
purchased by wire on Columbus Day, Veteran's Day or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances, described under "Redeeming Class B Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.
CONVERSION OF CLASS B SHARES. Class B Shares will automatically convert into
Class A Shares at the end of the month seven years after the purchase date,
except as noted below, and will no longer be subject to a distribution services
fee (See "Other Classes of Shares"). Class B Shares acquired by exchange from
Class B Shares of another fund in the Liberty Family of Funds will convert into
Class A Shares based on the time of the initial purchase. Class B Shares
acquired through reinvestment of distributions will convert into Class A Shares
based on the date of the initial purchase to which such shares relate. For this
purpose, Class B Shares acquired through reinvestment of distributions will be
attributed to particular purchases of Class B Shares in accordance with such
procedures as the Directors may determine from time to time. The availability of
the conversion feature is subject to the granting of an exemptive order by the
Securities and Exchange Commission or the adoption of a rule permitting
such conversion. In the event that the exemptive order or rule ultimately issued
by the Securities and Exchange Commission requires any conditions additional to
those described in this prospectus, shareholders will be notified. The
conversion of Class B Shares to Class A Shares is subject to the continuing
availability of a ruling from the Internal Revenue Service or an opinion of
counsel that such conversions will not constitute taxable events for Federal tax
purposes. There can be no assurance that such ruling or opinion will be
available, and the conversion of Class B Shares to Class A Shares will not occur
if such ruling or opinion is not available. In such event, Class B Shares would
continue to be subject to higher expenses than Class A Shares for an indefinite
period.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the transfer agent. A shareholder may apply for participation in
this program through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions of any net realized
long-term capital gains will be made at least once every twelve months.
Dividends and distributions are automatically reinvested on payment dates in
additional Shares of the Fund at ex-dividend date net asset value without a
sales charge, unless shareholders request cash payments on a new account form or
by writing to the transfer agent.
Shares purchased through a financial institution, for which payment by wire is
received by the transfer agent on the business day following the order, begin to
earn dividends on the day the wire payment is received. Otherwise, shares
purchased by wire begin to earn dividends on the business day after wire payment
is received by the transfer agent. Shares purchased by mail, or through a
financial institution, if the financial institution's payment is by check, begin
to earn dividends on the second business day after the check is received by
State Street Bank.
Shares earn dividends through the business day that proper written redemption
instructions are received by the transfer agent.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Class B shareholders may exchange all or some of their
Shares for Class B Shares of other funds in the Liberty Family of Funds. (Not
all funds in the Liberty Family of Funds currently offer Class B Shares. Contact
your financial institution regarding the availability of other Class B Shares in
the Liberty Family of Funds.) Exchanges are made at net asset value without
being assessed a contingent deferred sales charge on the exchanged shares. To
the extent that a shareholder exchanges for Class B Shares in other funds in the
Liberty Family of Funds, the time for which the exchanged-for shares were held
will be added, or tacked, to the time for which the exchanged-from shares were
held for purposes of satisfying the applicable holding period.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Class B Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company,
P.O. Box 8604, Boston, Massachusetts, 02266-8604.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. Shares
may be exchanged between two funds by telephone only if the two funds have
identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts,
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions may be recorded. Such instructions will be
processed as of 4:00 p.m. (Eastern time) and must be received by the transfer
agent before that time for Shares to be exchanged the same day. Shareholders
exchanging into a Fund will not receive any dividend that is payable to
shareholders of record on that date. This privilege may be modified or
terminated at any time. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
REDEEMING CLASS B SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, next determined after the Fund
receives the redemption request, less any applicable contingent deferred sales
charge (see "Contingent Deferred Sales Charge" below). Redemptions will be made
on days on which the Fund computes its net asset value. Redemptions can be made
through a financial institution or directly from the Fund. Redemption requests
must be received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value, less any applicable contingent deferred
sales charge, next determined after the Fund receives the redemption request
from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The proceeds will
be mailed to the shareholder's address of record or wire transferred to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event longer
than seven days after the request. The minimum amount for a wire transfer is
$1,000. If at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the transfer agent to accept telephone requests
must first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request to the
transfer agent. The written request should include the shareholder's name, the
Fund name and class designation, the account number, and the Share or dollar
amount requested, and should be signed exactly as Shares are registered.
If Share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
.a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
.a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;
.a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
.any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Shares from their Fund accounts within three full years
of the purchase date of those Shares will be charged a contingent deferred sales
charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the redeemed
Shares at the time of purchase or the net asset value of the redeemed Shares at
the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SHARES HELD SALES CHARGE
<S> <C>
Less than one year..................................................................... 3%
More than one year but less than two years............................................. 2%
More than two years but less than three years.......................................... 1%
More than three years.................................................................. None
</TABLE>
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than
three full years from the date of purchase. Redemptions will be processed in a
manner intended to maximize the amount of redemption which will not be subject
to a contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than three full years from the
date of purchase; (3) Shares held for fewer than three years on a first-in,
first-out basis. A contingent deferred sales charge is not assessed in
connection with an exchange of Fund Shares for shares of other Class B Shares of
funds in the Liberty Family of Funds (see "Exchanges for Shares of Other
Funds"). Any contingent deferred sales charge imposed at the time the
exchanged-for shares are redeemed is calculated as if the shareholder had held
the shares from the date on which he became a shareholder of the exchanged-from
shares. Moreover, the contingent deferred sales charge will be eliminated with
respect to certain redemptions (see "Elimination of Contingent Deferred Sales
Charge" below).
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions in connection with certain distributions from
Individual Retirement Accounts, qualified retirement plans or tax-sheltered
annuities; and (3) involuntary redemptions by the Fund of shares in shareholder
accounts that do not comply with the minimum balance requirements. In addition,
to the extent that the distributor does not make advance payments to certain
financial institutions for purchases made by their clients, no contingent
deferred sales charge will be imposed on redemptions of Shares held by
Directors, employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial institution
that sells shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act of 1940, an
insurance company, or any other financial institutions to the extent that no
payments were advanced for purchases made through or by such entities. The
Directors reserve the right to discontinue elimination of the contingent
deferred sales load. Shareholders will be notified of such elimination. Any
Shares purchased prior to the termination of such waiver would have the
contingent deferred sales charge eliminated as provided in the Fund's prospectus
at the time of the purchase of the Shares. If a shareholder making a redemption
qualifies for an elimination of the contingent deferred sales charge, the
shareholder must notify Federated Securities Corp. or the transfer agent in
writing that he is entitled to such elimination.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution. Due
to the fact that Shares are sold with a sales charge, it is not advisable for
shareholders to be purchasing Shares while participating in this program. A
contingent deferred sales charge will be imposed on Shares redeemed within three
full years of their purchase date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,500 . This
requirement does not apply, however, if the balance falls below $500 because of
changes in the Fund's net asset value. Before Shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
of the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Securities Corp., Federated
Administrative Services, Inc., and the Funds (as defined in the Combined
Statement of Additional Information).
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Director Trustee, Federated Advisers, Federated Management, and
Tower Federated Research; Director, AEtnaLife and Casualty
Pittsburgh, PA Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, President and Director of
the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior
Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood and General Partner or Trustee in private
Associates, Inc., real estate ventures in Southwest Florida; Director,
Realtors Trustee, or Managing General Partner of the Funds; formerly,
3255 Tamiami Trail North President, Naples Property Management, Inc.
Naples, FL
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc., and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General Partner
of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth
225 Franklin Street of Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly, President, State Street Bank
and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Center;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; Chairman,
National Advisory Council for Environmental Policy and
Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue* President and President and Trustee, Federated Investors; Trustee,
Federated Investors Director Federated Advisers, Federated Management, and Federated
Tower Research; President and Director, Federated Administrative
Pittsburgh, PA Services/Federated Administrative Services, Inc.; President
or Vice President of the Funds; Director, Trustee, or
Managing General Partner of some of the Funds. Mr. Donahue
is the son of John F. Donahue, Chairman and Director of the
Fund.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Chairman and Director, Federated Securities Corp.; President
Tower or Vice President of the Funds; Director or Trustee of some
Pittsburgh, PA of the Funds.
Edward C. Gonzales* Vice President and Vice President, Treasurer, and Trustee, Federated In-
Federated Investors Treasurer vestors; Vice President and Treasurer, Federated Advisers,
Tower Federated Management, and Federated Research; Executive Vice
Pittsburgh, PA President, Treasurer, and Director, Federated Securities
Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services/Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle Vice President and Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Secretary Federated Investors; Vice President, Secretary, and Trustee,
Tower Federated Advisers, Federated Management, and Federated
Pittsburgh, PA Research; Executive Vice President, Secretary, and Director,
Federated Administrative Services/Federated Administrative
Services, Inc.; Director and Executive Vice President,
Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV* Vice President Vice President and Trustee, Federated Investors; Executive
Federated Investors Vice President, Federated Securities Corp.; President and
Tower Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of the Funds; formerly,
Vice President, The Standard Fire Insurance Company and
President of its Federated Research Division.
</TABLE>
*This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940.
\Members of the Fund's Exectutive Committee. The Exectutive Committee of the
Board of Directors handles the responsibilites of the Board of Directors
between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .30 of 1% of the Fund's average daily net assets, plus 4.5% of
the Fund's annual gross income, (excluding any capital gains or losses.)
The adviser may voluntarily choose to waive a portion of its fee or
reimburse the Fund for certain operating expenses. The adviser can
terminate this voluntary waiver of its advisory fee at any time at its sole
discretion. The adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors is
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Jonathan C. Conley has been the Fund's portfolio manager since October,
1984. Mr. Conley joined Federated Investors in 1979 and has been a Vice
President of the Fund's investment adviser since 1982. Mr. Conley is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Virginia.
DISTRIBUTION OF CLASS B SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 3% of the net asset value of
Shares purchased by their clients or customers. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
Class B Shares will pay to the distributor an amount computed at an annual rate
of .75% of the average daily Class B net assets of Class B Shares to finance any
activity which is principally intended to result in the sale of Class B Shares
subject to the Distribution Plan.
Because distribution fees to be paid by the Fund to the distributor may not
exceed an annual rate of .75% of the Class B Shares, average daily net assets,
it will take the distributor a number of years to recoup the expenses it has
incurred for its distribution and distribution-related services pursuant to the
Plan.
The Distribution Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, and
including interest, carrying or other financing charges in connection with
excess amounts expended, or the distributor's overhead expenses. However, the
distributor may be able to recover such amounts or may earn a profit from future
payments made by the Fund under the Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Class B Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholders Services, a subsidiary of Federated Investors, under
which Federated Shareholder Services will either perform shareholder services
directly or will select financial institutions to perform shareolder services.
Financial institutions will receive fees based upon shares owned by their
clients or customers. The schedules of such fees and the basis upon which such
fees will be paid will be determined from time to time by the Fund and Federated
Shareholder Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. Certain financial institutions may be
compensated by the adviser or its affiliates for the continuing investment of
customers' assets in certain funds, including the Fund, advised by those
entities. These payments will be made directly by the Distributor or Adviser
from their assets, and will not be made from the assets of the Fund.
Furthermore, the Adviser or its affiliates may offer to pay a fee from their own
assets to financial institutions as financial assistance for providing
substantial marketing, sales and operational support to the distributor. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Fund. Such assistance will be
predicated upon the amount of shares the dealer sells or may sell, and/or upon
the type and nature of sales or operational support furnished by the dealer.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services)
necessary to operate the Fund. Federated Administrative Services provides these
at an annual rate which relates to the average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors ("Federated Funds") as
specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Box 8604, Boston, Massachusetts
02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for shares of the Fund and dividend
disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110.
EXPENSES OF THE FUND AND CLASS B SHARES
Holders of Shares pay their allocable portion of Fund and portfolio expenses.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Fund and continuing
its existence; registering the Fund with federal and state securities
authorities; Directors' fees; auditors' fees; the cost of meetings of Directors;
legal fees of the Fund; association membership dues; and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the portfolio and Shares of the
portfolio; investment advisory services; taxes and commissions; custodian fees;
insurance premiums; auditors' fees; and such non-recurring and extraordinary
items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as a
class are expenses under the Fund's Shareholder Services Plan and Distribution
Plan. However, the Directors reserve the right to allocate certain other
expenses to holders of Shares as it deems appropriate ("Class Expenses"). In any
case, Class Expenses would be limited to: distribution fees; transfer agent fees
as identified by the transfer agent as attributable to holders of Shares; fees
under the Fund's Shareholder Services Plan; printing and postage expenses
related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Directors' fees incurred as a result of issues relating solely to Shares.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Shareholders are not required to pay federal income tax on any dividends
received from the Fund that represent net interest on tax-exempt municipal
bonds. However, under the Tax Reform Act of 1986, dividends representing net
interest income earned on some municipal bonds may be included in calculating
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.
The alternative minimum tax, up to to 28% of alternative minimum taxable income
for individuals and 20% for corporations, applies when it exceeds the regular
tax for the taxable year. Alternative minimum taxable income is equal to the
regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide
benefits to private parties. The Fund may purchase all types of municipal bonds,
including private activity bonds. Thus, should it purchase any such bonds, a
portion of the Fund's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their Shares.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
.the Fund is subject to the Pennsylvania corporate franchise tax; and
.Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return, yield, and
tax-equivalent yield for Class B Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Class B Shares after reinvesting all income and
capital gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Class B Shares is calculated each day by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by Class B Shares over a thirty-day period by the maximum
offering price per share of Class B Shares on the last day of the period. This
number is then annualized using semi-annual compounding. The tax-equivalent
yield of Class B Shares is calculated similarly to the yield but is adjusted to
reflect the taxable yield that Class B Shares would have
had to earn to equal its actual yield, assuming a specific tax rate. The yield
and the tax-equivalent yield do not necessarily reflect income actually earned
Class B Shares and therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the contingent deferred sales charge, which, if excluded, would increase the
total return, yield, and tax-equivalent yield.
Total return, yield and tax-equivalent yield will be calculated separately for
Class A Shares, Class B Shares, and Class C Shares. Because Class B Shares and
Class C Shares are subject to Rule 12b-1 fees and Services Plan fees, the yield
and tax-equivalent yield for Class A Shares, for the same period, may exceed
that of Class B Shares and Class C Shares. Depending on the dollar amount
invested, and the time period for which any particular class of shares is held,
the total return for any particular class may exceed that of another.
From time to time the Fund may advertise the performance of Class A Shares,
Class B Shares, and Class C Shares using certain financial publications and/or
compare the performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund presently offers Class A Shares, Class B Shares, and Class C Shares.
Class A Shares are sold primarily to customers of financial institutions subject
to a front-end sales charge of up to 4.50%. The Fund has also adopted a Services
Plan fee of up to 0.25 of 1% of the Class A Shares' average daily net assets
with respect to Class A Shares. Investments in Class A Shares are subject to a
minimum initial investment of $500, unless the investment is in a retirement
account,
in which case the minimum investment is $50. Class A Shares are not distributed
pursuant to a Rule
12b-1 Plan, and therefore are not subject to a distribution services fee.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales charge; however, Class C Shares are subject to
a contingent deferred sales charge of up to 1.00%. Class C Shares are
distributed pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the
distributor is paid a fee of up to 0.75 of 1% in addition to a Shareholder
Services Fee of up to 0.25 of 1% of the Class C Shares' average daily net
assets. Investments in Class C Shares are subject to a minimum initial
investment of $1,500.
The amount of dividends payable to Class A Shares will generally exceed that of
Class B Shares and Class C Shares by the difference between Class Expenses borne
by shares of each respective class.
The stated advisory fee is the same for all three classes of shares.
LIBERTY MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent auditors. Their report dated May 13, 1994 on the Fund's financial
statements for the year ended March 31, 1994 is included in the Annual Report
dated March 31, 1994, which is incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91 $ 8.51
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.66 0.66 0.67 0.71 0.72 0.72 0.73 0.75 0.80 0.40
- --------------------
Net realized and
unrealized
gain/(loss)
on investments (0.40) 0.64 0.37 0.14 0.21 0.23 (0.77) 0.29 1.60 0.40
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations 0.26 1.30 1.04 0.85 0.93 0.95 (0.04) 1.04 2.40 0.80
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.66) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80) (0.40)
- --------------------
Distributions to
shareholders from
net realized gain
on investment
transactions (0.02) -- -- -- -- -- -- -- -- --
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Distributions (0.68) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80)
(0.40)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END
OF PERIOD $ 11.20 $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 2.10% 12.13% 10.05% 8.42% 9.20% 9.76% (0.17%) 10.28% 28.25% 9.49%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.84% 0.80% 0.84% 0.89% 0.90% 0.95% 0.95% 0.95% 0.93% 1.04%(b)
- --------------------
Net investment
income 5.59% 5.81% 6.17% 6.77% 6.80% 7.07% 7.28% 7.07% 8.39%
9.09%(b)
- --------------------
Expense waiver/
reimbursement(a) -- -- -- -- -- -- -- -- 0.23% 0.30%(b)
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $714,384 $706,126 $590,118 $511,611 $474,797 $440,445 $388,916 $424,655 $248,710 $105,664
- --------------------
Portfolio turnover
rate 27% 13% 8% 45% 25% 58% 55% 13% 2% 1%
- --------------------
<CAPTION>
SEPT. 30,
1984
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.20
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.80
- --------------------
Net realized and
unrealized
gain/(loss)
on investments (0.69)
- -------------------- ---------
Total from
investment
operations 0.11
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.80)
- --------------------
Distributions to
shareholders from
net realized gain
on investment
transactions --
- -------------------- ---------
Total Distributions (0.80)
- -------------------- ---------
NET ASSET VALUE, END
OF PERIOD $ 8.51
- -------------------- ---------
TOTAL RETURN** 1.23%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 1.14%
- --------------------
Net investment
income 9.00%
- --------------------
Expense waiver/
reimbursement(a) 0.28%
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $47,652
- --------------------
Portfolio turnover
rate 28%
- --------------------
</TABLE>
* For the six months ended March 31, 1985. The Fund changed its fiscal year-end
from September 30 to March 31, effective March 1, 1985.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b)Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent auditors. Their report dated May 13, 1994 on the Fund's financial
statements for the year ended March 31, 1994 is included in the Annual Report
dated March 31, 1994, which is incorporated by reference. This table should be
read in conjunction with the Fund's financial statements and notes thereto,
which may be obtained from the Fund.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.70
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.52
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.48)
- --------------------------------------------------------------------------------------------- -------------------
Total from investment operations 0.04
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.52)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain
on investment transactions (0.02)
- --------------------------------------------------------------------------------------------- -------------------
TOTAL DISTRIBUTIONS (0.54)
- --------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 11.20
- --------------------------------------------------------------------------------------------- -------------------
TOTAL RETURN** 0.17%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 1.80%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 4.70%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 22,066
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 27%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 20, 1993 (date of initial
public offering) to
March 31, 1994.
** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY MUNICIPAL
SECURITIES FUND, INC.
CLASS B SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
August , 1994
<logo> FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8051601A-B (8/94)
LIBERTY MUNICIPAL SECURITIES FUND, INC.
CLASS C SHARES
PROSPECTUS
The Class C Shares of Liberty Municipal Securities Fund, Inc. (the "Fund")
represent interests in an open-end, diversified management investment company (a
mutual fund) with an investment objective of providing its shareholders a high
level of current income which is exempt from federal regular income tax by
investing in a professionally managed, diversified portfolio primarily limited
to municipal bonds.
THE CLASS C SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND 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 CLASS C SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Class C Shares of the Fund. Keep this prospectus for future
reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares dated August __, 1994 with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated August __, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 3
- ------------------------------------------------------
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objective 4
Investment Policies 4
Acceptable Investments 4
Characteristics 4
When-Issued and Delayed
Delivery Transactions 5
Temporary Investments 5
Portfolio Turnover 5
Municipal Bonds 5
Investment Risks 7
Investment Limitations 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN CLASS C SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through a Financial Institution 8
Directly From the Distributor 8
Minimum Investment Required 9
What Shares Cost 9
Systematic Investment Program 9
Certificates and Confirmations 9
Dividends and Distributions 9
EXCHANGE PRIVILEGE 10
- ------------------------------------------------------
Requirements for Exchange 10
Tax Consequences 10
Making an Exchange 10
Telephone Instructions 10
REDEEMING CLASS C SHARES 11
- ------------------------------------------------------
Through a Financial Institution 11
Directly From the Fund 11
By Telephone 11
By Mail 11
Signatures 12
Contingent Deferred Sales Charge 12
Systematic Withdrawal Program 13
Accounts with Low Balances 13
FUND INFORMATION 13
- ------------------------------------------------------
Management of the Fund 13
Board of Directors 13
Officers and Directors 13
Investment Adviser 16
Advisory Fees 17
Adviser's Background 17
Distribution of Class C Shares 17
Distribution and Shareholder
Services Plans 18
ADMINISTRATION OF THE FUND 18
- ------------------------------------------------------
Administrative Services 18
Custodian 19
Transfer Agent and Dividend
Disbursing Agent 19
Legal Counsel 19
Independent Auditors 19
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
TAX INFORMATION 20
- ------------------------------------------------------
Federal Income Tax 20
Pennsylvania Corporate and
Personal Property Taxes 21
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
OTHER CLASSES OF SHARES 22
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS A SHARES 23
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable) (1)............................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee........................................................................................... 0.59%
12b-1 Fee................................................................................................ 0.75%
Total Other Expenses..................................................................................... 0.46%
Shareholder Services Fee........................................................................0.25%
Total Class C Shares Operating Expenses......................................................... 1.80%
</TABLE>
- ---------
(1) The Contingent Deferred Sales Charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within one
year of their purchase date. For a more complete description see "Redeeming
Class C Shares."
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS C SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS C SHARES" AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You 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....... $29 $57 $97 $212
You would pay the following expenses on the same investment,
assuming no redemption................................................... $18 $57 $97 $212
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Class C Shares of the Fund. The Fund also offers two additional classes of
shares called Class A Shares and Class B Shares. Class C Shares, Class A Shares,
and Class B Shares are subject to certain of the same expenses; however, Class A
Shares are subject to a maximum sales load of 4.50% but are not subject to a
12b-1 fee or a contingent deferred sales charge. Class B Shares are subject to a
12b-1 fee of 0.75% and a maximum contingent deferred sales charge of 3.00%, but
are not subject to a sales load. See "Other Classes of Shares."
LIBERTY MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent auditors. Their report dated May 13, 1994 on the Fund's financial
statements for the year ended March 31, 1994, is included in the Annual Report
dated March 31, 1994, which is incorporated by reference.
<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.70
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.52
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.48)
- --------------------------------------------------------------------------------------------- -------------------
Total from investment operations 0.04
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.52)
- ---------------------------------------------------------------------------------------------
Distributions to shareholders from net realized gain
on investment transactions (0.02)
- --------------------------------------------------------------------------------------------- -------------------
TOTAL DISTRIBUTIONS (0.54)
- --------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 11.20
- --------------------------------------------------------------------------------------------- -------------------
TOTAL RETURN** %0.17
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses %1.80(a)
- ---------------------------------------------------------------------------------------------
Net investment income %4.70(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $ 22,066
- ---------------------------------------------------------------------------------------------
Portfolio turnover
rate 27%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 20, 1993 (date of initial
public offering) to
March 31, 1994.
** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on September
10, 1976. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. With respect to this Fund, as of the date of this prospectus,
the Board of Directors ("Directors") has established three classes of shares,
known as Class A Shares, Class B Shares, and Class C Shares. This prospectus
relates only to the Class C Shares ("Shares") of the Fund.Class C Shares of the
Fund are designed primarily for individuals and institutions as a convenient
means of accumulating an interest in a professionally managed, diversified
portfolio primarily limited to municipal bonds. A minimum initial investment of
$1,500 is required.
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Liberty Family Funds."
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
_ Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
_ Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
_ International Equity Fund, providing long-term capital growth and income
through international securities;
_ International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
_ Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
_ Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
_ Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
_ Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
_ Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations; and
_ Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of a proven, professional investment adviser.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide for its shareholders a high
level of current income which is exempt from federal regular income tax.
Interest income of the Fund that is exempt from federal income tax retains its
tax-free status when distributed to the Fund's shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus. The
investment objective and the policies and limitations described below cannot be
changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
at least 65% of its portfolio in municipal bonds. Municipal bonds are debt
obligations issued by or on behalf of states, territories, and possessions of
the United States, including the District of Columbia, and their political
subdivisions, agencies, and instrumentalities, the interest from which is exempt
from federal regular income tax.
CHARACTERISTICS. The municipal bonds which the Fund buys have the same
characteristics assigned by Moody's Investors Service, Inc. and Standard &
Poor's Corporation to bonds of investment grade quality or better. However,
the Fund is not restricted to buying rated securities. Medium quality
investment grade bonds are rated A and Baa by Moody's or A and BBB by
Standard & Poor's. In certain cases the Fund's adviser may choose bonds
which are unrated if it judges the bonds to have the same characteristics
as medium quality bonds (i.e., an adequate but not outstanding capacity to
service their debt). Bonds rated "BBB" by Standard & Poor's or "Baa" by
Moody's have speculative characteristics. Changes in economic conditions or
other circumstances are more likely to weaken capacity to make principal
and interest payments than higher rated bonds. There is no limit to
portfolio maturity. A description of the ratings categories is contained in
the Appendix to the Statement of Additional Information.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase municipal
bonds on a when-issued or delayed delivery basis. In when-issued and delayed
delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous. The Fund's investment
adviser has adopted an operating policy, which can be changed by the Board of
Directors of the Fund, that investments in such securities will be limited to
20% of the Fund's assets.
TEMPORARY INVESTMENTS. The Fund invests its assets so that at least 80% of its
annual interest income is exempt from federal regular income tax. However, from
time to time on a temporary basis, or when the investment adviser determines
that market conditions call for a temporary defensive posture, the Fund may
invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment agrees at
the time of sale to repurchase it at a mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those it considers to
be of good quality. The Fund intends to invest no more than 20% of its assets in
temporary investments.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
PORTFOLIO TURNOVER
Securities in the Fund's portfolio will be sold whenever the Fund's investment
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The adviser to the Fund does not anticipate that portfolio turnover
will result in adverse tax consequences. Any such trading will increase the
Fund's portfolio turnover rate and transaction costs.
MUNICIPAL BONDS
Municipal bonds are generally issued to finance public works, such as airports,
bridges, highways, housing, hospitals, mass transportation projects, schools,
streets, and water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make loans to
other public institutions and facilities.
Municipal bonds include industrial development bonds issued by or on behalf of
public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal bonds are "general obligation"
and "revenue" bonds. General obligation bonds are secured by the issuer's pledge
of its full faith and credit and taxing power for the payment of principal and
interest. Interest on and principal of revenue bonds, however, are payable only
from the revenue generated by the facility financed by the bond or other
specified sources of revenue. Revenue bonds do not represent a pledge of credit
or create any debt of or charge against the general revenues of a municipality
or public authority. Industrial development bonds are typically classified as
revenue bonds.
Municipal Bonds may carry fixed, floating or inverse floating rates of interest.
Fixed rate bonds bear interest at the same rate from issuance until maturity.
The interest rate on floating rate bonds is subject to adjustment based upon
changes in market interest rates or indices, such as a bank's prime rate or a
published market index. The interest rate may be adjusted at specified intervals
or immediately upon any change in the applicable index rate. The interest rate
for most floating rate bonds varies directly with changes in the index rate, so
that the market value of the bond will approximate its stated value at the time
of each adjustment. However, inverse floating rate bonds have interest rates
that vary inversely with changes in the applicable index rate, such that the
bond's interest rate rises when market interest rates fall and fall when market
rates rise. The market value of floating rate bonds is less sensitive than fixed
rate bonds to changes in market interest rates. In contrast, the market value of
inverse floating rate bonds is more sensitive to market rate changes than fixed
or floating rate bonds. The affect of market rate changes on bonds depends upon
a variety of factors, including market expectations as to future changes in
interest rates and, in the case of floating and inverse floating rate bonds, the
frequency with which the interest rate is adjusted and the multiple of the index
rate used in making the adjustment.
Most municipal bonds pay interest in arrears on a semiannual or more frequent
basis. However, certain bonds, variously known as capital appreciation bonds or
zero coupon bonds, do not provide for any interest payments prior to maturity.
Such bonds are normally sold at a discount from their stated value, or provide
for periodic increases in their stated value to reflect a compounded interest
rate. The market value of these bonds is also more sensitive to changes in
market interest rates than bonds that provide for current interest payments.
The Fund does not intend to purchase securities if, as a result of such
purchase, more than 25% of the value of its total assets would be invested in
the securities of governmental subdivisions located in any one state, territory,
or possession of the United States.
The Fund will not generally invest more than 25% of its total assets in any one
industry. Governmental issuers of municipal securities are not considered part
of any "industry." However, municipal securities backed only by the assets and
revenues of nongovernmental users may, for this purpose, be deemed to be related
to the industry in which such nongovernmental users engage, and the 25%
limitation would apply to such obilgations. It is nonetheless possible that the
Fund may invest more than 25% of its assets in a broader segment of the
municipal securities market, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations or airport revenue
obligations. This would be the case only if the Fund determines that the yields
available from obligations in a particular segment of the market justified the
additional risks associated with a large investment in such segment. Although
such obligations could be supported by the credit of governmental users or by
the credit of nongovernmental users engaged in a number of industries, economic,
business, political and other developments generally affecting the revenues of
such users (for example, proposed legislation or pending court decisions
affecting the financing of such projects and market factors affecting the demand
for their services or products) may have a general adverse effect on all
municipal securities in such a market segment. The Fund reserves the right to
invest more than 25% of its assets in industrial development bonds or private
activity bonds or in securities of issuers located in the same state, however,
it has no present intention to do so.
INVESTMENT RISKS
Yields on municipal bonds depend on a variety of factors, including: the general
conditions of the money market and the taxable and municipal bond markets; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. The ability of the Fund to achieve its investment objective also
depends on the continuing ability of the issuers of municipal bonds to meet
their obligations for the payment of interest and principal when due. The prices
of municipal bonds fluctuate inversely in relation to the direction of interest
rates. The prices of longer term bonds fluctuate more widely in response to
market interest rates changes.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money or pledge securities except, under certain circumstances, the
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;
invest more than 5% of its total assets in securities of one issuer
(except cash and cash items and U.S. government obligations); or
invest more than 10% of its total assets in municipal bonds subject to
legal or contractual restrictions on resale, including repurchase
agreements maturing in more than seven days.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
invest more than 5% of its total assets in securities of issuers that have
records of less than three years of continuous operations; or
invest more than 10% of its net assets in illiquid securities, including
restricted securities which the adviser believes cannot be sold within
seven days and repurchase agreements maturing in more than seven days.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class C Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class C Shares in the liabilities of the Fund and those attributable to Class C
Shares, and dividing the remainder by the total number of Class C Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class A Shares and Class C Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN CLASS C SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject any
purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Other Payments to Financial Institutions").
DIRECTLY FROM THE DISTRIBUTOR
An investor may place an order to purchase Shares directly from Federated
Securities Corp. once an account has been established. To do so:
complete and sign the new account form available from the Fund;
enclose a check made payable to Liberty Municipal Securities Fund, Inc.
Class C Shares; and
mail both to Federated Services Company, P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire once an account has
been established, call the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts 02105;
Attention: Mutual Fund Servicing Division; For Credit to: Liberty Municipal
Securities Fund, Inc.--Class C Shares; Title or Name of Account; Wire Order
Number and/or Account Number. Shares cannot be purchased by wire on Columbus
Day, Veteran's Day or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the Fund. A shareholder may apply for participation in this program
through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions of any net realized
long-term capital gains will be made at least once every twelve months.
Dividends and distributions are automatically reinvested on payment dates in
additional Shares at ex-dividend date net asset value at without a sales charge,
unless shareholders request cash payments on a new account form or by writing to
the transfer agent.
Shares purchased through a financial institution, for which payment by wire is
received by the transfer agent the business day following the order, begin to
earn dividends on the day the wire payment is received. Otherwise, shares
purchased by wire begin to earn dividends on the business day after wire payment
is received by the transfer agent. Shares purchased by mail, or through a
financial institution, if the financial institution's payment is by check, begin
to earn dividends on the second business day after the check is received by the
transfer agent.
Shares earn dividends through the business day that proper written redemption
instructions are received by the transfer agent.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Class C shareholders may exchange all or some of their
Shares for Class C Shares in other funds in the Liberty Family of Funds at net
asset value without a contingent deferred sales charge. Any contingent deferred
sales charge charged at the time exhanged-for shares are redeemed is calculated
as if the shareholder had held the shares from the date on which he or she
became a shareholder of the exchanged-from Shares. For more information, see
"Contingent Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Class C Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds ("Federated Funds") may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Federated Services Company, P.O. Box 8604, Boston, Massachusetts
02266-8604.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. Telephone exchange instructions may be recorded. If the
instructions are given by a broker, a telephone authorization form completed by
the broker must be on file with the Fund. Shares may be exchanged between two
funds by telephone only if the two funds have identical shareholder
registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent and deposited to the shareholder's account
before being exchanged. Telephone exchange instructions may be recorded. Such
instructions will be processed as of 4:00 p.m. (Eastern time) and
must be received by the Fund before that time for shares to be exchanged the
same day. Shareholders exchanging into a Fund will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
REDEEMING CLASS C SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemptions can be made through a financial institution or directly
from the Fund. Redemption requests must be received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value, less any applicable contingent deferred
sales charge, next determined after the Fund receives the redemption request
from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. Telephone
redemption instructions may be recorded. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. The minimum amount for a wire transfer is $1,000. If at any time,
the Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company. The written request should include the shareholder's
name, the Fund name and class designation, the account number, and the Share or
dollar amount requested, and should be signed exactly as the Shares are
registered.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares will be charged a contingent deferred sales
charge by Federated Securities Corp. of 1.00% for redemptions of those Shares
made within one year from date of purchase. To the extent that a shareholder
exchanges between or among Class C Shares in other funds in the Liberty Family
of Funds, the time for which the exchanged-for shares were held will be added,
or tacked, to the time for which the exchanged-from shares were held for the
purposes of satisfying the one-year holding period. The contingent deferred
sales charge will be calculated based upon the lesser of the original purchase
price of the Shares or the net asset value of the Shares when redeemed. For
additional information, see "Other Payments to Financial Institutions."
The contingent deferred sales charge will not be imposed on Shares acquired
through reinvestment of dividends or distribution of short-term or long-term
capital gains. Redemptions are deemed to have occurred in the following order:
(i) Shares acquired through the reinvestment of dividends and long-term capital
gains, (ii) purchases of Shares occurring more than one year before the date of
redemption, and (iii) purchases of Shares within the previous year.
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class C Shares in other Liberty Family Funds or in
connection with redemptions by the Fund of accounts with low balances.
No contingent deferred sales charge will be imposed on shares purchased through
a bank trust department, an investment adviser or a retirement plan where the
third party administrator has entered into certain arrangements with Federated
Securities Corp.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,500. This
requirement does not apply, however, if the balance falls below $1,500 because
of changes in the Fund's net asset value. Before Shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
of the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Securities Corp., Federated
Services Company, Federated Administrative Services, and the Funds (as defined
in the Combined Statement of Additional Information).
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J.
Christopher Donahue, President and Director of the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior
Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood and General Partner or Trustee in private real estate ventures
Associates, Inc., in Southwest Florida; Director, Trustee, or Managing General
Realtors Partner of the Funds; formerly, President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc., and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General Partner
of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
</TABLE>
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
<S> <C> <C>
Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly, President, State Street Bank
and Trust Company and State Street Boston Corporation; and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Center;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue* President and President and Trustee, Federated Investors and Federated
Federated Investors Tower Director Administrative Services; Trustee, Federated Investors
Pittsburgh, PA Federated Advisers, Federated Management, and Federated
Research; Trustee, Federated Services Company; President or
Vice President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds. Mr. Donahue is the son
of John F. Donahue, Chairman and Director of the Fund.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.; President
Pittsburgh, PA or Vice President of the Funds; Director or Trustee of some
of the Funds.
</TABLE>
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATION DURING PAST FIVE YEARS
<S> <C> <C>
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated In-
Federated Investors Tower and Treasurer vestors; Vice President and Treasurer, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Executive Vice
President, Treasurer, and Director, Federated Securities
Corp.; Trustee, Federated Services Company; Chairman,
Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary, and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated
Research; Trustee, Federated Services Company, Executive
Vice President, Secretary, and Trustee, Federated
Administrative Services; Director and Executive Vice
President, Federated Securities Corp.; Vice President and
Secretary of the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive
Federated Investors Tower Vice President, Federated Securities Corp.; President and
Pittsburgh, PA Trustee, Federated Advisers, Federated Management, and
Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of the Funds; formerly,
Vice President, The Standard Fire Insurance Company and
President of its Federated Research Division.
</TABLE>
*This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940, as amended.
\Member of the Fund's Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilites of the Board of Directors between
meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to.30 of 1% of the Fund's average daily net assets, plus 4.5% of
the Fund's annual gross income, (excluding any capital gains or losses).
The adviser may voluntarily choose to waive a portion of its fee or
reimburse the Fund for certain operating expenses. The adviser can
terminate this voluntary waiver of its advisory fee at any time at its sole
discretion. The adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Jonathan C. Conley has been the Fund's portfolio manager since October,
1984. Mr. Conley joined Federated Investors in 1979 and has been a Vice
President of the Fund's investment adviser since 1982. Mr. Conley is a
Chartered Financial Analyst and received his M.B.A. in Finance from the
University of Virginia.
The distributor will pay financial institutions an amount equal to 1% of the net
asset value of Shares purchased by their clients or customers at the time of
purchase. Financial institutions may elect to waive the initial payment
described above; such waiver will result in the waiver by the Fund of the
otherwise applicable contingent deferred sales charge. Furthermore, the Adviser
or its affiliates may offer to pay a fee from their own assets to financial
institutions as financial assistance for providing substantial marketing, sales
and operational support to the distributor. The support may include sponsoring
sales, educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Assistance will be predicated upon the amount of Shares
the dealer sells or may sell, and/or upon the type and nature of sales or
operational support furnished by the dealer.
DISTRIBUTION OF CLASS C SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. _Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Class C Shares will pay to the distributor an amount, computed at an annual
rate of .75 of 1% of the average daily net assets of the Class C Shares to
finance any activity which is principally intended to result in the sale of
shares subject to the Distribution Plan. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales support services as agents for
their clients or customers.
The Distribtion Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net assets of the Class C Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which fees will be paid
will be determined from time to time by the Fund and Federated Shareholder
Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from the interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state laws.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
ADMINISTRATION OF THE FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES. _Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Box 8604, Boston, Massachusetts
02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604 is transfer agent for the Shares of
the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Shareholders are not required to pay federal income tax on any dividends
received from the Fund that represent net interest on tax-exempt municipal
bonds. However, under the Tax Reform Act of 1986, dividends representing net
interest income earned on some municipal bonds may be included in calculating
the federal individual alternative minimum tax or the federal alternative
minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide benefits to
private parties. The Fund may purchase all types of municipal bonds, including
private activity bonds. Thus, should it purchase any such bonds, a portion of
the Fund's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their Shares.
These tax consequences apply whether dividends are received in cash or as
additional Shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return, yield, and
tax-equivalent yield for Class C Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class C Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class C Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
C Shares over a thirty-day period by the maximum offering price per share of the
Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of Class C Shares is
calculated similarly to the yield but is adjusted to reflect the taxable yield
that Class C Shares would have had to earn to equal its actual yield, assuming a
specific tax rate. The yield and the tax-equivalent yield do not necessarily
reflect income actually earned by Class C Shares and therefore, may not
correlate to the dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the contingent deferred sales charge, which, if excluded, would increase the
total return, yield, and tax-equivalent yield.
Total return, yield and tax-equivalent yield will be calculated separately for
Class A Shares, Class B Shares, and Class C Shares. Because Class B Shares and
Class C Shares are subject to Rule 12b-1 fees and Services Plan Fees, the yield
and tax-equivalent yield for Class A Shares, for the same period, may exceed
that of Class B Shares and Class C Shares. Depending on the dollar amount
invested and the time period for which any particular class of Shares is held,
the total return for any particular class may exceed that of another.
From time to time, the Fund may advertise the performance of Class A Shares,
Class B Shares, and Class C Shares using certain financial publications and/or
compare the performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund currently offers Class A Shares, Class B Shares, and Class C Shares.
Class A Shares are sold primarily to customers of financial institutions subject
to a front-end sales charge of up to 4.50%. The Fund has also adopted a Services
Plan Fee of up to 0.25 of 1% of the Class A Shares' average daily net assets
with respect to Class A Shares. Class A Shares are subject to a minimum initial
investment of $500.
Class B Shares are sold primarily to customers of financial institutions subject
to certain contingent deferred sales charges. Class B Shares are distributed
pursuant to a 12b-1 Plan adopted by the Fund whereby the distributor is paid a
fee up to 0.75 of 1%. The Fund has also adopted a Services Plan Fee of up to
0.25 of 1% of the Class B Shares' average daily net assets with respect to Class
B Shares. Investments in Class B Shares are subject to a minimum initial
investment of $1,500.
The amount of dividends payable to Class A Shares will generally exceed that of
Class B Shares and Class C Shares by the difference between Class Expenses and
Shareholder Service Expenses borne by Class B Shares and shares of each
respective class.
The stated advisory fee is the same for all classes of shares.
LIBERTY MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent auditors. Their report dated May 13, 1994 on the Fund's financial
statements for the year ended March 31, 1994 is included in the Annual Report
dated March 31, 1994 which is incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91 $ 8.51
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.66 0.66 0.67 0.71 0.72 0.72 0.73 0.75 0.80 0.40
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.40) 0.64 0.37 0.14 0.21 0.23 (0.77) 0.29 1.60 0.40
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations 0.26 1.30 1.04 0.85 0.93 0.95 (0.04) 1.04 2.40 0.80
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.66) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80) (0.40)
- --------------------
Distributions to
shareholders from
net realized gain
on investment
transactions (0.02) -- -- -- -- -- -- -- -- --
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total Distributions (0.68) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80) (0.40)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END
OF PERIOD $ 11.20 $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 2.10% 12.13% 10.05% 8.42% 9.20% 9.76% (0.17%) 10.28% 28.25% 9.49%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.84% 0.80% 0.84% 0.89% 0.90% 0.95% 0.95% 0.95% 0.93% 1.04%(b)
- --------------------
Net investment
income 5.59% 5.81% 6.17% 6.77% 6.80% 7.07% 7.28% 7.07% 8.39% 9.09%(b)
- --------------------
Expense waiver/
reimbursement(a) -- -- -- -- -- -- -- -- 0.23% 0.30%(b)
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $714,384 $706,126 $590,118 $511,611 $474,797 $440,445 $388,916 $424,655 $248,710 $105,664
- --------------------
Portfolio turnover
rate 27% 13% 8% 45% 25% 58% 55% 13% 2% 1%
- --------------------
<CAPTION>
SEPT. 30,
1984
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 9.20
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.80
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.69)
- -------------------- ---------
Total from
investment
operations 0.11
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.80)
- --------------------
Distributions to
shareholders from
net realized gain
on investment
transactions --
- -------------------- ---------
Total Distributions (0.80)
- -------------------- ---------
NET ASSET VALUE, END
OF PERIOD $ 8.51
- -------------------- ---------
TOTAL RETURN** 1.23%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 1.14%
- --------------------
Net investment
income 9.00%
- --------------------
Expense waiver/
reimbursement(a) 0.28%
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $47,652
- --------------------
Portfolio turnover
rate 28%
- --------------------
</TABLE>
* For the six months ended March 31, 1985. The Fund changed its fiscal year-end
from September 30 to March 31, effective March 1, 1985.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a)This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(b)Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1994, which can be obtained free of charge.
LIBERTY MUNICIPAL
SECURITIES FUND, INC.
CLASS C SHARES
PROSPECTUS
August __, 1994
An Open-End, Diversified
Management Investment Company
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8042830A-C (8/94)
LIBERTY MUNICIPAL SECURITIES FUND, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectuses of Class A Shares, Class B Shares, and
Class C Shares of Liberty Municipal Securities Fund, Inc. (the "Fund")
dated August __, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus for any class write or call the Fund.
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated August __, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 1
Temporary Investments 1
Portfolio Turnover 2
Investment Limitations 2
THE FUNDS 4
- ---------------------------------------------------------------
Fund Ownership 4
INVESTMENT ADVISORY SERVICES 4
- ---------------------------------------------------------------
Adviser to the Fund 4
Advisory Fees 5
ADMINISTRATIVE SERVICES 5
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 5
- ---------------------------------------------------------------
PURCHASING SHARES 6
- ---------------------------------------------------------------
Distribution of Shares 6
Distribution Plan (Class B Shares and Class C
Shares Only) and Shareholder Services Plan 6
Conversion to Federal Funds 6
Purchases by Sales Representatives, Fund
Directors, and Employees 6
DETERMINING NET ASSET VALUE 6
- ---------------------------------------------------------------
Valuing Municipal Bonds 6
REDEEMING SHARES 7
- ---------------------------------------------------------------
TAX STATUS 7
- ---------------------------------------------------------------
The Fund's Tax Status 7
TOTAL RETURN 7
- ---------------------------------------------------------------
YIELD 7
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 8
- ---------------------------------------------------------------
Tax-Equivalency Table 8
PERFORMANCE COMPARISONS 8
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 9
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on September
10, 1976. On December 23, 1992, the shareholders of the Fund voted to permit the
Fund to offer separate series and classes of shares. On January 6, 1993, the
Board of Directors ("Directors") approved changing the name of the Fund,
effective January 6, 1993, from Federated Tax-Free Income Fund, Inc. to Liberty
Municipal Securities Fund, Inc.
Shares of the Fund are offered in three classes, known as Class A Shares, Class
B Shares, and Class C Shares (individually and collectively referred to as
"Shares" as the context may require.) This Combined Statement of Additional
Information relates to all three classes of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide for its shareholders a high level
of current income which is exempt from federal regular income tax. The objective
cannot be changed without approval of shareholders.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in municipal bonds.
CHARACTERISTICS
The municipal bonds in which the Fund invests have the characteristics
set forth in the prospectus.
If a high-rated bond loses its rating or has its rating reduced after the
Fund has purchased it, the Fund is not required to drop the bond from the
portfolio, but will consider doing so. If ratings made by Moody's or
Standard & Poor's change because of changes in those organizations or in
their rating systems, the Fund will try to use comparable ratings as
standards in accordance with the investment policies described in the
Fund's prospectus.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. As a matter of investment practice which may be
changed without shareholder approval, settlement dates may be a month or more
after entering into these transactions. The market values of the securities
purchased may vary from the purchase prices.
No fees or expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to be
purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled. The Fund may
engage in these transactions to an extent that would cause the segregation of an
amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments from time to time for
defensive purposes. During the last fiscal year, the Fund did not invest in
temporary investments and does not presently intend to do so in the current
fiscal year. The Fund might invest in temporary investments:
as a reaction to market conditions;
while waiting to invest proceeds of sales of shares or portfolio securities,
although generally proceeds from sales of shares will be invested in municipal
bonds as quickly as possible; or
in anticipation of redemption requests.
The Fund will not purchase temporary investments (other than securities of the
U.S. government, its agencies, or instrumentalities) if, as a result of the
purchase, more than 25% of the value of its total assets would be invested in
any one industry. However, the Fund may, for temporary defensive purposes,
invest more than 25% of the value of its assets in cash or cash items, U.S.
Treasury bills, or securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements. For purposes of its policies and
limitations, the Fund considers certificates of deposits and demand and time
deposits issued by a U.S. branch of a domestic bank or savings and loan having
capital, surplus and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time
of sale
- --------------------------------------------------------------------------------
to repurchase them at a mutually agreed upon time and price. The Fund or
its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody
of the Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund may only enter into
repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Fund's
adviser to be creditworthy pursuant to guidelines established by the
Directors.
From time to time, such as when suitable municipal bonds are not available, the
Fund may invest a portion of its assets in cash. Any portion of the Fund's
assets maintained in cash will reduce the amount of assets in municipal bonds
and thereby reduce the Fund's yield.
PORTFOLIO TURNOVER
Portfolio trading will be undertaken principally to accomplish the Fund's
objective in relation to anticipated movements in the general level of interest
rates. The Fund is free to dispose of portfolio securities at any time when
changes in circumstances or conditions make such a move desirable in light of
the investment objective. The Fund will not attempt to achieve or be limited to
a predetermined rate of portfolio turnover, such turnover always being
incidental to transactions undertaken with a view to achieving the Fund's
investment objective. During the fiscal years ended March 31, 1994 and 1993, the
portfolio turnover rates were 27% and 13%, respectively.
INVESTMENT LIMITATIONS
DIVERSIFICATION OF INVESTMENTS
The Fund may not invest more than 5% of its total assets in the
securities of any one issuer, except in cash and cash instruments
(depository instruments) and securities issued by the U.S. government,
its agencies, and instrumentalities.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user. If
in the case of an industrial development bond or governmental issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the guarantor
as well as the other issuer, subject to limited exclusions allowed by the
Investment Company Act of 1940.
BORROWING MONEY
The Fund may not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to one-
third of the value of its total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
securities. This borrowing provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities
would be inconvenient or disadvantageous.
The Fund will liquidate any such borrowings as soon as possible and may
not purchase any portfolio instruments while any borrowings are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of its total assets at the time of the pledge.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
- --------------------------------------------------------------------------------
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in
municipal bonds secured by real estate or interests in real estate.
INVESTING IN COMMODITIES OR MINERALS
The Fund will not buy or sell commodities, commodity contracts, or oil,
gas, or other mineral exploration or development programs.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments 25% or more of the
value of its assets in cash or cash items (including instruments issued
by a U.S. branch of a domestic bank or savings and loan having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment), securities issued or guaranteed by the U.S. government, its
agencies, or instrumentalities, or instruments secured by these money
market instruments, such as repurchase agreements.
MAKING LOANS
The Fund will not make loans, but may acquire publicly or non-publicly
issued municipal bonds or temporary investments or enter into repurchase
agreements in accordance with its investment objective, policies, and
limitations.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE FUND
The Fund will not purchase or retain the securities of any issuer if the
Officers and Directors of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities. This limitation does not apply
to the Fund's securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total assets
in municipal bonds subject to restrictions on resale, including
repurchase agreements maturing in more than seven days.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
ACQUIRING SECURITIES ISSUED BY OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment
company or investment trust.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of its net assets in illiquid
securities, including restricted securities which the adviser believes
cannot be sold within seven days and repurchase agreements maturing in
more than seven days.
INVESTING IN NEW OR FOREIGN ISSUERS OR IN SECURITIES NOT READILY MARKETABLE
In order to qualify Shares of the Fund for sale in certain states, the
Fund has agreed with certain state securities administrators not to
invest more than 5% of the value of its total assets in securities of
issuers with records of less than three years of continuous operations,
including the operation of any predecessor. The Fund has also agreed not
to purchase equity securities of any issuer that are not readily
marketable or to invest in securities of any foreign issuer.
In addition, in order to comply with certain state restrictions, the Fund will
not invest in real estate limited partnerships, oil, gas or other mineral
leases.
- --------------------------------------------------------------------------------
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not borrow money, pledge securities, invest in municipal bonds
subject to legal or contractual restrictions, invest in issuers whose securities
are owned by officers of the Fund, or invest in securities of issuers with a
record of less than three years of continuous operation in excess of 5% of the
value of its net assets during the last fiscal year and has no present intent to
do so in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposits and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
THE FUNDS
- --------------------------------------------------------------------------------
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International Series Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
World Investment Series, Inc.
FUND OWNERSHIP
As of May 9, 1994, there were no shareholders of record who owned 5% or more of
the outstanding Class A shares of the Fund.
Merrill Lynch Pierce Fenner & Smith (as record owner holding Class C shares for
its clients) Jacksonville, Florida, owned approximately 700,089 Shares (34.25%)
of the Fund as of May 9, 1994.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All the Class A (voting) shares of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue. John F. Donahue, is Chairman and Trustee of
Federated Advisers, Chairman and Trustee, Federated Investors, and Chairman and
Director of the Fund. John A. Staley, IV, is President of Federated Advisers,
Vice President and Trustee, Federated Investors, Executive Vice President,
Federated Securities Corp., and Vice President of the Fund. J. Christopher
Donahue is Trustee, Federated Advisers, President and Trustee, Federated
Investors, Trustee, Federated Administrative Services, Trustee, Federated
Services Company, and President and Director of the Fund. John W. McGonigle is
Vice President, Secretary and Trustee of Federated Advisers, Trustee, Vice
President, Secretary and General Counsel, Federated Investors, Executive Vice
President, Secretary and Trustee, Federated Administrative Services, Executive
Vice President and Director, Federated Securities Corp., Trustee, Federated
Services Company, and Vice President and Secretary of the Fund.
The adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended March
31, 1994, 1993, and 1992, the Fund's adviser earned $4,570,573, $4,015,243, and
$3,515,410, respectively.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as, the "Administrators".) For the
fiscal year ended March 31, 1994, the Administrators collectively earned
$541,113. For the fiscal years ended March 31, 1993 and 1992, Federated
Administrative Services, Inc., the Fund's former administrator, earned $398,773
and $373,123, respectively. John A.
Staley, IV, an officer of the Fund and Dr. Henry J. Gailliot, an officer of
Federated Advisers, the adviser to the Fund, each hold approximately 15% and
20%, respectively, of the outstanding common stock and serve as directors of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc., and Federated
Administrative Services.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value (plus a sales charge on Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the respective prospectus under "Investing in Class A
Shares," "Investing in Class B Shares," and "Investing in Class C Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
For the fiscal years ended March 31, 1994, 1993, and 1992, the distributor was
paid $642,965, $892,251, and $342,646, respectively. During the same periods,
the distributor retained $75,244, $105,101, and $110,661, respectively, after
dealer concessions.
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES PLAN
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
With respect to the Class B and C Shares of the Fund, by adopting the
Distribution Plan, the Board of Directors expects that the Fund will be able to
achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Fund in pursuing its investment objectives. By identifying potential
investors whose needs are served by the Fund's objectives, and properly
servicing these accounts, it may be possible to curb sharp fluctuations in rates
of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ending March 31, 1994, payments in the amount of $86,844
were made pursuant to the Distribution Plan, all of which was paid to the
financial institutions. In addition, for this period, payments in the amount of
$320,650 were made pursuant to the Shareholder Services Plan.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated Advisers,
and Federated Securities Corp. or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp. and their spouses and
children under 21, may buy Class A Shares at net asset value without a sales
charge. Shares may also be sold without a sales charge to trusts or pension or
profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS
The Board of Directors uses an independent pricing service to value municipal
bonds. The independent pricing service takes into consideration yield,
stability, risk, quality, coupon rate, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and any
other factors or market data it considers relevant in determining valuations for
normal institutional size trading units of debt securities, and does not rely
exclusively on quoted prices.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in the respective
prospectuses under "Redeeming Class A Shares," "Redeeming Class B Shares," and
"Redeeming Class C Shares." Although State Street Bank does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
To qualify for this treatment, the Fund must, among other requirements:
derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's average annual total return for Class A Shares for the one-year,
five-year, and ten-year periods ended March 31, 1994 was (2.52%), 7.34%, and
9.01%, respectively. The Fund's cumulative total return for Class C Shares for
the period from April 20, 1993 (date of initial public offering for Class C
Shares) was (0.81%).
The average annual total return for each class of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at the
end of the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, less any applicable sales
load adjusted over the period by any additional Shares, assuming the monthly
reinvestment of all dividends and distributions. Any applicable contingent
deferred sales charge is deducted from the ending value of the investment based
on the lesser of the original purchase price or the net asset value of Shares
redeemed.
Cumulative total return reflects the Class C Shares' total performance over a
specific period of time. This total return assumes and is reduced by the payment
of the maximum sales load and contingent deferred sales charge, if applicable.
The Class C Investment Shares' total return is representative of only eleven
months of investment activity since the start of performance.
YIELD
- --------------------------------------------------------------------------------
The Fund's yields for the thirty-day period ended March 31, 1994 for Class A
Shares and Class C Shares was 4.21% and 3.55%, respectively.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a 12-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by the
Fund because of certain adjustments required by the Securities and Exchange
Commission and therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Fund's tax-equivalent yield for the thirty-day period ended March 31, 1994
for Class A Shares and Class C Shares was 5.85% and 4.93%, respectively.
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 28% tax rate and assuming that income is 100%
tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1994 LIBERTY MUNICIPAL SECURITIES FUND
- ---------------------------------------------------------------------------------
FEDERAL INCOME TAX BRACKET
15.00% 28.00% 31.00% 36.00% 39.60%
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JOINT $1- $38,001- $91,851- $140,001- OVER
RETURN: 38,000 91,850 140,000 250,000 $ 250,000
SINGLE $1- $22,101- $53,501- $115,001- OVER
RETURN: 22,100 53,500 115,000 250,000 $ 250,000
- ---------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 10.59%
7.50% 8.82% 10.42% 10.87% 10.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
8.50% 10.00% 11.81% 12.32% 13.28% 14.07%
</TABLE>
NOTE: THE MAXIMUM MARGINAL TAX RATE FOR EACH BRACKET WAS USED IN CALCULATING THE
TAXABLE YIELD EQUIVALENT.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Fund.
*Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of each of the classes of Shares depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's or any class of Shares' expenses; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio
securities and compute offering price. The financial publications and/or indices
which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the general municipal
bond funds category in advertising and sales literature.
LEHMAN BROTHERS REVENUE BOND INDEX is a total return performance benchmark for
the long-term, investment grade, revenue bond market. Returns and attributes
for the index are calculated semi-monthly.
LEHMAN SEVEN YEAR STATE GENERAL OBLIGATIONS INDEX is an index of general
obligation bonds rated A or better with 6-8 years to maturity.
MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns represent the historic change in the value of an investment in any of
the classes of Shares based on monthly reinvestment of dividends over a
specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any of the classes of Shares using charts, graphs, and
descriptions, compared to federally insured bank products including certificates
of deposit and time deposits and to money market funds using the Lipper
Analytical Services money market instruments average.
Advertisements may quote performance which does not reflect the effect of the
sales charge for Class A Shares.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements audited by Deloitte & Touche, the Fund's independent
auditors, for the fiscal year end March 31, 1994 and the Report by Deloitte &
Touche dated May 13, 1994, are incorporated herein by reference to the Annual
Report of the Fund dated March 31, 1994. A copy of this report may be obtained
without charge by contacting the Fund at the address listed in any of the
prospectuses.
8051601B 8/94)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements. (Incorporated into the Prospectus
(Part A) by reference to the Registrant's Annual Report
dated March 3l, l994 ; File Nos. 2-57181 and 811-2677)
(Class A Shares and Class C Shares); To be filed by
amendment (Class B Shares);
(b) Exhibits and Consents:
(1) Copy of Articles of Incorporation of the Registrant,
as amended (l.,2.);
(2) (i) Copy of By-Laws of the Registrant, as amended
(l.,2.,3.,6.);
(ii) Copy of Amendment to By-Laws effective August 26,
l987 (8.);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant (1.);
(5) Conformed Copy of Investment Advisory Contract of the
Registrant (9.);
(6) Conformed Copy of Administrative Support and
Distributor's Contract of the Registrant ;+
(7) Not applicable;
(8) Conformed Copy of Custodian Agreement of the
Registrant ;+
(9) (i) Conformed Copy of Shareholder Services Plan;+
(ii) Conformed Copy of Transfer Agency and Services
Agreement;+
(10) Not applicable.
(11) Conformed Copy of Consent of Independent Public
Auditors;+
(12) Not applicable;
(13) Not applicable;
(14) Not applicable;
(15) (i) Copy of Distribution Plan of the
Registrant (5.);
(ii) Sales Agreement of the Registrant (6.);
(iii) Conformed Copy of 12b-1 Agreement of the
Registrant ;+
(iv) Copy of Dealer Agreement of the Registrant (5.);
+All exhibits have been filed electronically.
l. Response is incorporated by reference to Registrant's Pre-
effective Amendment No. l on Form S-5 filed September 24, l976. (File Nos.
2-57l8l and 811-2677)
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 2 on Form S-5 filed October l, l976. (File Nos. 2-
57l8l and 811-2677)
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 2l on Form N-l filed November 28, l983. (File Nos.
2-57l8l and 811-2677)
4. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 24 on Form N-lA filed November 30, l984. (File Nos.
2-57l8l and 811-2677)
5. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 29 on Form N-lA filed July l4, l987. (File Nos. 2-
57l8l and 811-2677)
6. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 3l on Form N-lA filed June 8, l988. (File Nos. 2-
57l8l and 811-2677)
7. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 32 on Form N-lA filed July l9, l988. (File Noss. 2-
57l8l and 811-2677)
8. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 35 on Form N-lA filed July 27, l989. (File Nos. 2-
57l8l and 811-2677)
9. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 36 on Form N-lA filed July l7, l990. (File Nos. 2-
57l8l and 811-2677)
l0. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 37 on Form N-lA filed July 23, l99l. (File Nos. 2-
57l8l and 811-2677)
ll. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 38 on Form N-lA filed July 22, l992. (File Nos. 2-
57l8l and 811-2677)
l2. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 40 on Form N-lA filed May l0, l993. (File Nos. 2-
57l8l and 811-2677)
(16) Schedule for Computation of Fund Performance
Data (7.);
(17) Power of Attorney (11.);
(18) Conformed Copy of Opinion and Consent of Counsel
as to availabliity of Rule 485(b) (12.);
Item 25. Persons Controlled by or Under Common Control with Registrant:
None.
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 9, 1994
Shares of capital stock
($0.0l per share par value)
Class A Shares 22,331
Class B Shares 0
Class C Shares 462
Item 27. Indemnification:(ll)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment
adviser, see the section entitled "Fund Information -
Management of the Fund" in Part A. The affiliations with the
Registrant of four of the Trustees and one of the Officers of
the investment adviser are included in Part A of this
Registration Statement under "Fund Management - Officers and
Directors." The remaining Trustee of the investment adviser,
his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson,
Partner, Wilson, Halbrook & Bayard, 107 W. Market Street,
Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are: William
D. Dawson, III, J. Thomas Madden, and Mark L. Mallon,
Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Gary J. Madich and J.
Alan Minteer, Senior Vice Presidents; Randall A. Bauer,
Jonathan C. Conley, Deborah A. Cunningham, Mark E. Durbiano,
Roger A. Early, Kathleen M. Foody-Malus, David C. Francis,
Thomas M. Franks, Edward C. Gonzales, Jeff A. Kozemchek, John
W. McGonigle, Gregory M. Melvin, Susan M. Nason, Mary Jo
Ochson, Robert J. Ostrowski, Charles A. Ritter, and
Christopher H. Wiles, Vice Presidents, Edward C. Gonzales,
Treasurer, and John W. McGonigle, Secretary. The business
address of each of the Officers of the investment adviser is
Federated Investors Tower, Pittsburgh, PA 15222-3779. These
individuals are also officers of a majority of the investment
advisers to the Funds listed in Part B of this Registration
Statement under "The Funds."
+All exhibits have been filed electronically.
7. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 32 on Form N-lA filed July l9, l988. (File Nos. 2-
57l8l and 811-2677)
ll. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 38 on Form N-lA filed July 22, l992. (File Nos. 2-
57l8l and 811-2677)
l2. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 40 on Form N-lA filed May l0, l993. (File Nos. 2-
57l8l and 811-2677)
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: A.T. Ohio Municipal
Money Fund; Alexander Hamilton Funds; American Leaders Fund,
Inc.; Annuity Management Series; Automated Cash Management
Trust; Automated Government Money Trust; BayFunds; The
Biltmore Funds; The Biltmore Municipal Funds; The Boulevard
Funds; California Municipal Cash Trust; Cambridge Series
Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; FT Series, Inc.; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated
Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S.
Government Bond Fund; Financial Reserves Fund; First Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fountain Square Funds; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Independence One Mutual Funds; Insight Institutional
Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High
Income Bond Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark
Twain Funds; Marshall Funds, Inc.; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust; The
Monitor Funds; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Tower Mutual Funds; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; Vision Fiduciary Funds, Inc.;
Vision Group of Funds, Inc.; and World Investment Series,
Inc.
Federated Securities Corp. also acts as principal underwriter for
the following closed-end investment company: Liberty Term Trust,
Inc. - l999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President
Federated Investors Tower President, and Treasurer, and Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John A. Staley, IV Executive Vice President Vice President
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
Item 30. Location of Accounts and Records:
Liberty Municipal Securities Federated Investors Tower
Fund, Inc. Pittsburgh, PA 15222-3779
Federated Services Company P.O. Box 8604
("Transfer Agent and Dividend Boston, MA 02266-8604
Disbursing Agent")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust Box 8604
Company Boston, Massachusetts
("Custodian") 02266-8604
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders, upon request and without charge.
Registrant hereby undertakes to comply with the provisions of
Section 16 (c) of the 1940 Act with respect to the removal of Direcetors
and the calling of special shareholder meetings by shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, LIBERTY MUNICIPAL SECURITIES
FUND, INC., has duly caused this Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Pittsburgh and Commonwealth of Pennsylvania, on the 25th day of
May, 1994.
LIBERTY MUNICIPAL SECURITIES FUND, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
May 25, 1994
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Charles H. Field
Charles H. Field Attorney In Fact May 25, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
J. Christopher Donahue* President and Director
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
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
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit (11) under Form N-1A
Exhibit 23 under 601/Reg SK
DELOITTE & TOUCHE
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 42 to Registration Statement No. 2-57181 of Liberty Municipal
Securities Fund, Inc. of our report dated May 13, 1994, appearing in the
Annual Report to Shareholders for the year ended March 31, 1994, and to the
references to us under the heading "Financial Highlights" in the
Prospectus, which is part of such Registration Statement.
By: DELOITTE & TOUCHE
Deloitte & Touche
Independent Auditors
Boston, Massachusetts
May 23, 1994
Exhibit 15 under form N-1A
Exhibit 1 under Item 601/Reg. S-K
LIBERTY MUNICIPAL SECURITIES FUND, INC.
RULE 12b-1 PLAN
This Plan ("Plan") is adopted as of this 1st day of March, 1993,
by the Board of Directors of Liberty Municipal Securities Fund, Inc.
(the "Corporation"), a Maryland corporation with respect to certain
classes of shares ("Classes") of the portfolios of the Corporation (the
"Funds") set forth in exhibits hereto.
1. This Plan is adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended ("Act"), so as to allow the
Corporation to make payments as contemplated herein, in conjunction with
the distribution of Classes of the Funds ("Shares").
2. This Plan is designed to finance activities of Federated
Securities Corp. ("FSC") principally intended to result in the sale of
Shares to include: (a) providing incentives to financial institutions
("Institutions") to sell Shares; (b) advertising and marketing of Shares
to include preparing, printing and distributing prospectuses and sales
literature to prospective shareholders and with Institutions; and (c)
implementing and operating the Plan. In compensation for services
provided pursuant to this Plan, FSC will be paid a fee in respect of the
following Classes set forth on the applicable exhibit.
3. Any payment to FSC in accordance with this Plan will be made
pursuant to the "Distributor's Contract" entered into by the Corporation
and FSC. Any payments made by FSC to Institutions with funds received
as compensation under this Plan will be made pursuant to the "Rule 12b-1
Agreement" entered into by FSC and the Institution.
4. FSC has the right (i) to select, in its sole discretion, the
Institutions to participate in the Plan and (ii) to terminate without
cause and in its sole discretion any Rule 12b-1 Agreement.
5. Quarterly in each year that this Plan remains in effect, FSC
shall prepare and furnish to the Board of Directors of the Corporation,
and the Board of Directors shall review, a written report of the amounts
expended under the Plan and the purpose for which such expenditures were
made.
6. This Plan shall become effective with respect to each Class
(i) after approval by majority votes of: (a) the Corporation's Board of
Directors; (b) the members of the Board of the Corporation who are not
interested persons of the Corporation and have no direct or indirect
financial interest in the operation of the Corporation's Plan or in any
related documents to the Plan ("Disinterested Directors"), cast in
person at a meeting called for the purpose of voting on the Plan; and
(c) the outstanding voting securities of the particular Class, as
defined in Section 2(a)(42) of the Act and (ii) upon execution of an
exhibit adopting this Plan with respect to such Class.
7. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added
pursuant to an exhibit during the initial year of this Plan for the
period of one year from the date set forth above and may be continued
thereafter if this Plan is approved with respect to each Class at least
annually by a majority of the Corporation's Board of Directors and a
majority of the Disinterested Directors, cast in person at a meeting
called for the purpose of voting on such Plan. If this Plan is adopted
with respect to a Class after the first annual approval by the Directors
as described above, this Plan will be effective as to that Class upon
execution of the applicable exhibit pursuant to the provisions of
paragraph 6(ii) above and will continue in effect until the next annual
approval of this Plan by the Directors and thereafter for successive
periods of one year subject to approval as described above.
8. All material amendments to this Plan must be approved by a
vote of the Board of Directors of the Corporation and of the
Disinterested Directors, cast in person at a meeting called for the
purpose of voting on it.
9. This Plan may not be amended in order to increase materially
the costs which the Classes may bear for distribution pursuant to the
Plan without being approved by a majority vote of the outstanding voting
securities of the Classes as defined in Section 2(a)(42) of the Act.
10. This Plan may be terminated with respect to a particular
Class at any time by: (a) a majority vote of the Disinterested
Directors; or (b) a vote of a majority of the outstanding voting
securities of the particular Class as defined in Section 2(a)(42) of the
Act; or (c) by FSC on 60 days' notice to the Corporation.
11. While this Plan shall be in effect, the selection and
nomination of Disinterested Directors of the Corporation shall be
committed to the discretion of the Disinterested Directors then in
office.
12. All agreements with any person relating to the
implementation of this Plan shall be in writing and any agreement
related to this Plan shall be subject to termination, without penalty,
pursuant to the provisions of Paragraph 10 herein.
13. This Plan shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
EXHIBIT A
to the
12b-1 Plan
LIBERTY MUNICIPAL SECURITIES FUND, INC.
Class C Shares
This Plan is adopted by Liberty Municipal Securities Fund, Inc.
with respect to the Class of Shares of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of .75 of 1%
of the average aggregate net asset value of the Class C Shares of
Liberty Municipal Securities Fund, Inc. held during the month.
Witness the due execution hereof this 4th day of May, 1993.
LIBERTY MUNICIPAL SECURITIES
FUND, INC.
By: /s/ J. Christopher Donahue
President
EXHIBIT B
to the
12b-1 Plan
LIBERTY MUNICIPAL SECURITIES FUND, INC.
Select Shares
This Plan is adopted by Liberty Municipal Securities Fund, Inc.
with respect to the Class of Shares of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
FSC will be paid a monthly fee computed at the annual rate of .75 of 1%
of the average aggregate net asset value of the Select Shares of Liberty
Municipal Securities Fund, Inc. held during the month.
Witness the due execution hereof this 1st day of December, 1993.
LIBERTY MUNICIPAL SECURITIES
FUND, INC.
By: /s/ J. Christopher Donahue
President
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
LIBERTY MUNICIPAL SECURITIES FUND, INC.
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 1st day of March, 1993, by and between LIBERTY
MUNICIPAL SECURITIES FUND, INC. (the "Corporation"), a Maryland
Corporation, and FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania
Corporation.
In consideration of the mutual covenants hereinafter contained, it
is hereby agreed by and between the parties hereto as follows:
1. The Corporation hereby appoints FSC as its agent to sell and
distribute shares of the Corporation which may be offered in one or more
series (the "Funds") consisting of one or more classes (the "Classes")
of shares (the "Shares"), as described and set forth on one or more
exhibits to this Agreement, at the current offering price thereof as
described and set forth in the current Prospectuses of the Corporation.
FSC hereby accepts such appointment and agrees to provide such other
services for the Corporation, if any, and accept such compensation from
the Corporation, if any, as set forth in the applicable exhibit to this
Agreement.
2. The sale of any Shares may be suspended without prior notice
whenever in the judgment of the Corporation it is in its best interest
to do so.
3. Neither FSC nor any other person is authorized by the
Corporation to give any information or to make any representation
relative to any Shares other than those contained in the Registration
Statement, Prospectuses, or Statements of Additional Information
("SAIs") filed with the Securities and Exchange Commission, as the same
may be amended from time to time, or in any supplemental information to
said Prospectuses or SAIs approved by the Corporation. FSC agrees that
any other information or representations other than those specified
above which it or any dealer or other person who purchases Shares
through FSC may make in connection with the offer or sale of Shares,
shall be made entirely without liability on the part of the Corporation.
No person or dealer, other than FSC, is authorized to act as agent for
the Corporation for any purpose. FSC agrees that in offering or selling
Shares as agent of the Corporation, it will, in all respects, duly
conform to all applicable state and federal laws and the rules and
regulations of the National Association of Securities Dealers, Inc.,
including its Rules of Fair Practice. FSC will submit to the
Corporation copies of all sales literature before using the same and
will not use such sales literature if disapproved by the Corporation.
4. This Agreement is effective with respect to each Class as of
the date of execution of the applicable exhibit and shall continue in
effect with respect to each Class presently set forth on an exhibit and
any subsequent Classes added pursuant to an exhibit during the initial
term of this Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such continuance is
approved at least annually by the Directors of the Corporation including
a majority of the members of the Board of Directors of the Corporation
who are not interested persons of the Corporation and have no direct or
indirect financial interest in the operation of any Distribution Plan
relating to the Corporation or in any related documents to such Plan
("Disinterested Directors") cast in person at a meeting called for that
purpose. If a Class is added after the first annual approval by the
Directors as described above, this Agreement will be effective as to
that Class upon execution of the applicable exhibit and will continue in
effect until the next annual approval of this Agreement by the Directors
and thereafter for successive periods of one year, subject to approval
as described above.
5. This Agreement may be terminated with regard to a particular
Fund or Class at any time, without the payment of any penalty, by the
vote of a majority of the Disinterested Directors or by a majority of
the outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement. This Agreement may be terminated with regard to a particular
Fund or Class by FSC on sixty (60) days' written notice to the
Corporation.
6. This Agreement may not be assigned by FSC and shall
automatically terminate in the event of an assignment by FSC as defined
in the Investment Company Act of 1940, as amended, provided, however,
that FSC may employ such other person, persons, corporation or
corporations as it shall determine in order to assist it in carrying out
its duties under this Agreement.
7. FSC shall not be liable to the Corporation for anything done
or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed by this Agreement.
8. This Agreement may be amended at any time by mutual agreement
in writing of all the parties hereto, provided that such amendment is
approved by the Directors of the Corporation including a majority of the
Disinterested Directors of the Corporation cast in person at a meeting
called for that purpose.
9. This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the
Corporation agrees to indemnify and hold harmless FSC and each person,
if any, who controls FSC within the meaning of Section 15 of the
Securities Act of 1933 and Section 20 of the Securities Act of 1934, as
amended, against any and all loss, liability, claim, damage and expense
whatsoever (including but not limited to any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever) arising
out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any
Prospectuses or SAIs (as from time to time amended and supplemented) or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the Corporation
about FSC by or on behalf of FSC expressly for use in the Registration
Statement, any Prospectuses and SAIs or any amendment or supplement
thereof.
If any action is brought against FSC or any controlling
person thereof with respect to which indemnity may be sought against the
Corporation pursuant to the foregoing paragraph, FSC shall promptly
notify the Corporation in writing of the institution of such action and
the Corporation shall assume the defense of such action, including the
employment of counsel selected by the Corporation and payment of
expenses. FSC or any such controlling person thereof shall have the
right to employ separate counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of FSC or such
controlling person unless the employment of such counsel shall have been
authorized in writing by the Corporation in connection with the defense
of such action or the Corporation shall not have employed counsel to
have charge of the defense of such action, in any of which events such
fees and expenses shall be borne by the Corporation. Anything in this
paragraph to the contrary notwithstanding, the Corporation shall not be
liable for any settlement of any such claim of action effected without
its written consent. The Corporation agrees promptly to notify FSC of
the commencement of any litigation or proceedings against the
Corporation or any of its officers or Directors or controlling persons
in connection with the issue and sale of Shares or in connection with
the Registration Statement, Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the
Corporation, each of its Directors, each of its officers who have signed
the Registration Statement and each other person, if any, who controls
the Corporation within the meaning of Section 15 of the Securities Act
of 1933, but only with respect to statements or omissions, if any, made
in the Registration Statement or any Prospectus, SAI, or any amendment
or supplement thereof in reliance upon, and in conformity with,
information furnished to the Corporation about FSC by or on behalf of
FSC expressly for use in the Registration Statement or any Prospectus,
SAI, or any amendment or supplement thereof. In case any action shall
be brought against the Corporation or any other person so indemnified
based on the Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof, and with respect to which indemnity may
be sought against FSC, FSC shall have the rights and duties given to the
Corporation, and the Corporation and each other person so indemnified
shall have the rights and duties given to FSC by the provisions of
subsection (a) above.
(c) Nothing herein contained shall be deemed to protect any
person against liability to the Corporation or its shareholders to which
such person would otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of the duties of such
person or by reason of the reckless disregard by such person of the
obligations and duties of such person under this Agreement.
(d) Insofar as indemnification for liabilities may be
permitted pursuant to Section 17 of the Investment Company Act of 1940,
as amended, for Directors, officers, FSC and controlling persons of the
Corporation by the Corporation pursuant to this Agreement, the
Corporation is aware of the position of the Securities and Exchange
Commission as set forth in the Investment Company Act Release No. IC-
11330. Therefore, the Corporation undertakes that in addition to
complying with the applicable provisions of this Agreement, in the
absence of a final decision on the merits by a court or other body
before which the proceeding was brought, that an indemnification payment
will not be made unless in the absence of such a decision, a reasonable
determination based upon factual review has been made (i) by a majority
vote of a quorum of non-party Disinterested Directors, or (ii) by
independent legal counsel in a written opinion that the indemnitee was
not liable for an act of willful misfeasance, bad faith, gross
negligence or reckless disregard of duties. The Corporation 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, FSC or controlling person of the Corporation 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
Corporation is insured against losses arising by reason of any lawful
advances; or (iii) a majority of a quorum of non-party Disinterested
Directors or independent legal counsel in a written opinion makes a
factual determination that there is reason to believe the indemnitee
will be entitled to indemnification.
11. If at any time the Shares of any Fund are offered in two or
more Classes, FSC agrees to adopt compliance standards as to when a
class of shares may be sold to particular investors.
12. This Agreement will become binding on the parties hereto upon
the execution of the attached exhibits to the Agreement.
Exhibit A
to the
Distributor's Contract
Liberty Municipal Securities Fund, Inc.
Class A Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1993, between Liberty Municipal
Securities Fund, Inc. and Federated Securities Corp., Liberty Municipal
Securities Fund, Inc. executes and delivers this Exhibit on behalf of
the Funds, and with respect to the Class of Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of March, 1993.
ATTEST: LIBERTY MUNICIPAL SECURITIES
FUND, INC.
/s/ John W. McGonigle By: /s/J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
Exhibit B
to the
Distributor's Contract
LIBERTY MUNICIPAL SECURITIES FUND, INC.
Class C Shares
The following provisions are hereby incorporated and made part of
the Distributor's Contract dated the 1st day of March, 1993, between
Liberty Municipal Securities Fund, Inc. and Federated Securities Corp.
with respect to Class of the Fund set forth above.
1. The Corporation hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-listed
Classes ("Shares"). Pursuant to this appointment, FSC is authorized to
select a group of brokers ("Brokers") to sell Shares at the current
offering price thereof as described and set forth in the respective
prospectuses of the Corporation, and to render administrative support
services to the Corporation and its shareholders. In addition, FSC is
authorized to select a group of administrators ("Administrators") to
render administrative support services to the Corporation and its
shareholders.
2. Administrative support services may include, but are not
limited to, the following functions: 1) account openings: the Broker
or Administrator communicates account openings via computer terminals
located on the Broker's or Administrator's premises; 2) account
closings: the Broker or Administrator communicates account closings via
computer terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker's or Administrator's own
personal computer or through the use of a toll-free telephone number; 4)
enter redemption transactions: Broker or Administrator enters
redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide
accounting support for all transactions. Broker or Administrator also
wires funds and receives funds for Corporation share purchases and
redemptions, confirms and reconciles all transactions, reviews the
activity in the Corporation's accounts, and provides training and
supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Corporation's
accounts; 7) prospectus and shareholder reports: Broker or
Administrator maintains and distributes current copies of prospectuses
and shareholder reports; 8) advertisements: the Broker or Administrator
continuously advertises the availability of its services and products;
9) customer lists: the Broker or Administrator continuously provides
names of potential customers; 10) design services: the Broker or
Administrator continuously designs material to send to customers and
develops methods of making such materials accessible to customers; and
11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Corporation will pay
FSC for services pursuant to this Agreement, a monthly fee computed at
the annual rate of .75 of 1% of the average aggregate net asset value
of the shares of the Class C Shares held during the month. For the
month in which this Agreement becomes effective or terminates, there
shall be an appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Classes' expenses
exceed such lower expense limitation as FSC may, by notice to the
Corporation, voluntarily declare to be effective.
5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1
herein. FSC, in its sole discretion, may pay Brokers and Administrators
a periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time by
FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors of the
Corporation on a quarterly basis showing amounts expended hereunder
including amounts paid to Brokers and Administrators and the purpose for
such payments.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1993, between Liberty Municipal
Securities Fund, Inc. and Federated Securities Corp., Liberty Municipal
Securities Fund, Inc. executes and delivers this Exhibit on behalf of
the Funds, and with respect to the Class of Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 4th day of May, 1993.
ATTEST: LIBERTY MUNICIPAL SECURITIES
FUND, INC.
/s/ John W. McGonigle By: /s/J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
Exhibit C
to the
Distributor's Contract
LIBERTY MUNICIPAL SECURITIES FUND, INC.
Select Shares
The following provisions are hereby incorporated and made part of
the Distributor's Contract dated the 1st day of March, 1993, between
Liberty Municipal Securities Fund, Inc. and Federated Securities Corp.
with respect to Class of the Fund set forth above.
1. The Corporation hereby appoints FSC to engage in activities
principally intended to result in the sale of shares of the above-listed
Classes ("Shares"). Pursuant to this appointment, FSC is authorized to
select a group of brokers ("Brokers") to sell Shares at the current
offering price thereof as described and set forth in the respective
prospectuses of the Corporation, and to render administrative support
services to the Corporation and its shareholders. In addition, FSC is
authorized to select a group of administrators ("Administrators") to
render administrative support services to the Corporation and its
shareholders.
2. Administrative support services may include, but are not
limited to, the following functions: 1) account openings: the Broker
or Administrator communicates account openings via computer terminals
located on the Broker's or Administrator's premises; 2) account
closings: the Broker or Administrator communicates account closings via
computer terminals; 3) enter purchase transactions: purchase
transactions are entered through the Broker's or Administrator's own
personal computer or through the use of a toll-free telephone number; 4)
enter redemption transactions: Broker or Administrator enters
redemption transactions in the same manner as purchases; 5) account
maintenance: Broker or Administrator provides or arranges to provide
accounting support for all transactions. Broker or Administrator also
wires funds and receives funds for Corporation share purchases and
redemptions, confirms and reconciles all transactions, reviews the
activity in the Corporation's accounts, and provides training and
supervision of its personnel; 6) interest posting: Broker or
Administrator posts and reinvests dividends to the Corporation's
accounts; 7) prospectus and shareholder reports: Broker or
Administrator maintains and distributes current copies of prospectuses
and shareholder reports; 8) advertisements: the Broker or Administrator
continuously advertises the availability of its services and products;
9) customer lists: the Broker or Administrator continuously provides
names of potential customers; 10) design services: the Broker or
Administrator continuously designs material to send to customers and
develops methods of making such materials accessible to customers; and
11) consultation services: the Broker or Administrator continuously
provides information about the product needs of customers.
3. During the term of this Agreement, the Corporation will pay
FSC for services pursuant to this Agreement, a monthly fee computed at
the annual rate of .75 of 1% of the average aggregate net asset value
of the shares of the Select Shares held during the month. For the month
in which this Agreement becomes effective or terminates, there shall be
an appropriate proration of any fee payable on the basis of the number
of days that the Agreement is in effect during the month.
4. FSC may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Classes' expenses
exceed such lower expense limitation as FSC may, by notice to the
Corporation, voluntarily declare to be effective.
5. FSC will enter into separate written agreements with various
firms to provide certain of the services set forth in Paragraph 1
herein. FSC, in its sole discretion, may pay Brokers and Administrators
a periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time by
FSC in its sole discretion.
6. FSC will prepare reports to the Board of Directors of the
Corporation on a quarterly basis showing amounts expended hereunder
including amounts paid to Brokers and Administrators and the purpose for
such payments.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated March 1, 1993, between Liberty Municipal
Securities Fund, Inc. and Federated Securities Corp., Liberty Municipal
Securities Fund, Inc. executes and delivers this Exhibit on behalf of
the Funds, and with respect to the Class of Shares thereof, first set
forth in this Exhibit.
Witness the due execution hereof this 1st day of December, 1993.
ATTEST: LIBERTY MUNICIPAL SECURITIES
FUND, INC.
/s/ John W. McGonigle By: /s/J. Christopher Donahue
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary Executive Vice President
(SEAL)
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
LIBERTY MUNICIPAL SECURITIES FUND, INC.
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as of this 1st
day of March, 1993, by the Board of Directors of Liberty Municipal
Securities Fund, Inc. (the "Fund"), a Maryland corporation with respect
to certain classes of shares ("Classes") of the portfolios of the
Corporation ("the Funds") set forth in exhibits hereto.
1. This Plan is adopted to allow the Fund to make payments as
contemplated herein to obtain certain personal services for shareholders
and/or the maintenance of shareholder accounts ("Services").
2. This Plan is designed to compensate broker/dealers and other
participating financial institutions and other persons ("Providers") for
providing services to the Fund and its shareholders. The Plan will be
administered by Federated Administrative Services, Inc. ("FAS"). In
compensation for the services provided pursuant to this Plan, Providers
will be paid a monthly fee computed at the annual rate not to exceed .25
of 1% of the average aggregate net asset value of the shares of the Fund
held during the month.
3. Any payments made by the Funds to any Provider pursuant to
this Plan will be made pursuant to the "Shareholder Services Agreement"
entered into by FAS on behalf of the Fund and the Provider. Providers
which have previously entered into "Administrative Agreements" or "Rule
12b-1 Agreements" with Federated Securities Corp. may be compensated
under this Plan for Services performed pursuant to those Agreements
until the Providers have executed a "Shareholder Services Agreement"
hereunder.
4. The Fund has the right (i) to select, in its sole
discretion, the Providers to participate in the Plan and (ii) to
terminate without cause and in its sole discretion any Shareholder
Services Agreement.
5. Quarterly in each year that this Plan remains in effect, FAS
shall prepare and furnish to the Board of Directors of the Fund, and the
Board of Directors shall review, a written report of the amounts
expended under the Plan.
6. This Plan shall become effective (i) after approval by
majority votes of: (a) the Fund's Board of Directors; and (b) the
members of the Board of the Corporation who are not interested persons
of the Corporation and have no direct or indirect financial interest in
the operation of the Corporation's Plan or in any related documents to
the Plan ("Disinterested Directors"), cast in person at a meeting called
for the purpose of voting on the Plan; and (ii) upon execution of an
exhibit adopting this Plan.
7. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added
pursuant to an exhibit during the initial year of this Plan for the
period of one year from the date set forth above and may be continued
thereafter if this Plan is approved with respect to each Class at least
annually by a majority of the Corporation's Board of Directors and a
majority of the Disinterested Directors, cast in person at a meeting
called for the purpose of voting on such Plan. If this Plan is adopted
with respect to a class after the first annual approval by the Directors
as described above, this Plan will be effective as to that Class upon
execution of the applicable exhibit pursuant to the provisions of
paragraph 6(ii) above and will continue in effect until the next annual
approval of this Plan by the Directors and thereafter for successive
periods of one year subject to approval as described above.
8. All material amendments to this Plan must be approved by a
vote of the Board of Directors of the Fund and of the Disinterested
Directors, cast in person at a meeting called for the purpose of voting
on it.
9. This Plan may be terminated at any time by: (a) a majority
vote of the Disinterested Directors; or (b) a vote of a majority of the
outstanding voting securities of the Fund as defined in Section 2(a)(42)
of the Act.
10. While this Plan shall be in effect, the selection and
nomination of Disinterested Directors of the Fund shall be committed to
the discretion of the Disinterested Directors then in office.
11. All agreements with any person relating to the
implementation of this Plan shall be in writing and any agreement
related to this Plan shall be subject to termination, without penalty,
pursuant to the provisions of Paragraph 9 herein.
12. This Plan shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
Witness the due execution hereof this 1st day of March, 1993.
Liberty Municipal Securities Fund, Inc.
By:/s/ J. Christopher Donahue
President
EXHIBIT A
to the
Shareholder Services Plan
Liberty Municipal Securities Fund, Inc.
Class A Shares
This Plan is adopted by Liberty Municipal Securities Fund, Inc.
with respect to the Class of Shares of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
Providers will be paid a monthly fee computed at the annual rate of up
to .25 of 1% of the average aggregate net asset value of the Class A
Shares of Liberty Municipal Securities Fund, Inc. held during the month.
Witness the due execution hereof this 1st day of March, 1993.
Liberty Municipal Securities Fund, Inc.
By:/s/ J. Christopher Donahue
President
EXHIBIT B
to the
Shareholder Services Plan
Liberty Municipal Securities Fund, Inc.
Class C Shares
This Plan is adopted by Liberty Municipal Securities Fund, Inc.
with respect to the Class of Shares of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
Providers will be paid a monthly fee computed at the annual rate of up
to .25 of 1% of the average aggregate net asset value of the Class C
Shares of Liberty Municipal Securities Fund, Inc. held during the month.
Witness the due execution hereof this 4th day of May, 1993.
Liberty Municipal Securities Fund, Inc.
By:/s/ J. Christopher Donahue
President
EXHIBIT C
to the
Shareholder Services Plan
Liberty Municipal Securities Fund, Inc.
Select Shares
This Plan is adopted by Liberty Municipal Securities Fund, Inc.
with respect to the Class of Shares of the Corporation set forth above.
In compensation for the services provided pursuant to this Plan,
Providers will be paid a monthly fee computed at the annual rate of up
to .25 of 1% of the average aggregate net asset value of the Select
Shares of Liberty Municipal Securities Fund, Inc. held during the month.
Witness the due execution hereof this 1st day of December, 1993.
Liberty Municipal Securities Fund, Inc.
By: /s/ J. Christopher Donahue
President
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December, 1993, by and between those
investment companies listed on Exhibit 1 as may be amended from time to time,
having their principal office and place of business at Federated Investors
Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on behalf of the portfolios
(individually referred to herein as a "Fund" and collectively as "Funds") of
the Trust, and FEDERATED SERVICES COMPANY, a Delaware business trust, having
its principal office and place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
with authorized and issued shares of capital stock or beneficial interest
("Shares"); and
WHEREAS, the Trust wishes to retain the Company to provide certain pricing,
accounting and recordkeeping services for each of the Funds, including any
classes of shares issued by any Fund ("Classes"), and the Company is willing
to furnish such services; and
WHEREAS, the Trust desires to appoint the Company as its transfer agent,
dividend disbursing agent, and agent in connection with certain other
activities, and the Company desires to accept such appointment; and
WHEREAS, the Trust desires to appoint the Company as its agent to select,
negotiate and subcontract for custodian services from an approved list of
qualified banks and the Company desires to accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or another
agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for those
investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and on
the terms set forth in this Agreement. The Company accepts such appointment
and agrees to furnish the services herein set forth in return for the
compensation as provided in Article 3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's Board of Trustees or
Directors ("Board"), the Company will assist the Trust with regard to fund
accounting for the Trust, and/or the Funds, and/or the Classes, and in
connection therewith undertakes to perform the following specific services;
A. Value the assets of the Funds and determine the net asset value per
share of each Fund and/or Class, at the time and in the manner from
time to time determined by the Board and as set forth in the
Prospectus and Statement of Additional Information ("Prospectus") of
each Fund;
B. Calculate the net income of each of the Funds, if any;
C. Calculate capital gains or losses of each of the Funds resulting from
sale or disposition of assets, if any;
D. Maintain the general ledger and other accounts, books and financial
records of the Trust, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules thereunder
in connection with the services provided by the Company;
E. Preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records to be maintained by Rule 31a-1 under the 1940 Act in
connection with the services provided by the Company. The Company
further agrees that all such records it maintains for the Trust are
the property of the Trust and further agrees to surrender promptly to
the Trust such records upon the Trust's request;
F. At the request of the Trust, prepare various reports or other financial
documents required by federal, state and other applicable laws and
regulations; and
G. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the fees
set forth on Fee Schedules A ("A1, A2, A3 etc..."), annexed hereto and
incorporated herein, as may be added or amended from time to time.
Such fees do not include out-of-pocket disbursements of the Company
for which the Funds shall reimburse the Company upon receipt of a
separate invoice. Out-of-pocket disbursements shall include, but
shall not be limited to, the items specified in Schedules B ("B1, B2,
B3, etc..."), annexed hereto and incorporated herein, as may be added
or amended from time to time. Schedules B may be modified by the
Company upon not less than thirty days' prior written notice to the
Trust.
B. The Fund and/or the Class, and not the Company, shall bear the cost of:
custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental agencies; fees
of Trustees or Directors of the Trust; independent auditors expenses;
Federated Administrative Services and/or Federated Administrative
Services, Inc. legal and audit department expenses billed to Federated
Services Company for work performed related to the Trust, the Funds,
or the Classes; law firm expenses; or other expenses not specified in
this Article 3 which may be properly payable by the Funds and/or
classes.
C. The Company will send an invoice to each of the Funds as soon as
practicable after the end of each month. Each invoice will provide
detailed information about the compensation and out-of-pocket expenses
in accordance with Schedules A and Schedules B. The Funds and or the
Classes will pay to the Company the amount of such invoice within 30
days of receipt of the invoices.
D. Any compensation agreed to hereunder may be adjusted from time to time
by attaching to Schedules A revised Schedules dated and signed by a
duly authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement with
respect to a Fund or a Class to the end of the initial month shall be
prorated according to the proportion that such period bears to the
full month period. Upon any termination of this Agreement before the
end of any month, the fee for such period shall be prorated according
to the proportion which such period bears to the full month period.
For purposes of determining fees payable to the Company, the value of
the Fund's net assets shall be computed at the time and in the manner
specified in the Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time subcontract
to, employ or associate with itself such person or persons as the
Company may believe to be particularly suited to assist it in
performing services under this Section One. Such person or persons
may be third-party service providers, or they may be officers and
employees who are employed by both the Company and the Funds. The
compensation of such person or persons shall be paid by the Company
and no obligation shall be incurred on behalf of the Trust, the Funds,
or the Classes in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the Trust
hereby appoints the Company to act as, and the Company agrees to act as,
transfer agent and dividend disbursing agent for each Fund's Shares, and agent
in connection with any accumulation, open-account or similar plans provided to
the shareholders of any Fund ("Shareholder(s)"), including without limitation
any periodic investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a writing
signed or initialed by one or more person or persons as the Board shall have
from time to time authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions will be deemed
to be Proper Instructions if (a) the Company reasonably believes them to have
been given by a person previously authorized in Proper Instructions to give
such instructions with respect to the transaction involved, and (b) the Trust,
or the Fund, and the Company promptly cause such oral instructions to be
confirmed in writing. Proper Instructions may include communications effected
directly between electro-mechanical or electronic devices provided that the
Trust, or the Fund, and the Company are satisfied that such procedures afford
adequate safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with Proper
Instructions as may be provided from time to time by the Trust as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase of
shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the "Custodian"). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and hold
such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate to
the Shareholder at its address as set forth on the transfer
books of the Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as Dividend
Disbursing Agent for the Funds in accordance with the provisions
of its governing document and the then-current Prospectus of the
Fund. The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As the
Dividend Disbursing Agent, the Company shall, on or before the
payment date of any such distribution, notify the Custodian of
the estimated amount required to pay any portion of said
distribution which is payable in cash and request the Custodian
to make available sufficient funds for the cash amount to be
paid out. The Company shall reconcile the amounts so requested
and the amounts actually received with the Custodian on a daily
basis. If a Shareholder is entitled to receive additional
Shares by virtue of any such distribution or dividend,
appropriate credits shall be made to the Shareholder's account,
for certificated Funds and/or Classes, delivered where
requested; and
(2) The Company shall maintain records of account for each Fund and
Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company by
the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds from
the Custodian with respect to any redemption, the Company shall
pay or cause to be paid the redemption proceeds in the manner
instructed by the redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other request for
redemption does not comply with the procedures for redemption
approved by the Fund, the Company shall promptly notify the
Shareholder of such fact, together with the reason therefor, and
shall effect such redemption at the price applicable to the date
and time of receipt of documents complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual
basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the total
number of Shares of the Fund and/or Class which are authorized,
based upon data provided to it by the Fund, and issued and
outstanding. The Company shall also provide the Fund on a
regular basis or upon reasonable request with the total number
of Shares which are authorized and issued and outstanding, but
shall have no obligation when recording the issuance of Shares,
except as otherwise set forth herein, to monitor the issuance of
such Shares or to take cognizance of any laws relating to the
issue or sale of such Shares, which functions shall be the sole
responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust or the Fund to include a record for each Shareholder's
account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application, dividend
address and correspondence relating to the current
maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by this
Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall forthwith
upon the Fund's demand, turn over to the Fund and cease to
retain in the Company's files, records and documents created and
maintained by the Company pursuant to this Agreement, which are
no longer needed by the Company in performance of its services
or for its protection. If not so turned over to the Fund, such
records and documents will be retained by the Company for six
years from the year of creation, during the first two of which
such documents will be in readily accessible form. At the end
of the six year period, such records and documents will either
be turned over to the Fund or destroyed in accordance with
Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the following
information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the
Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with the
Internal Revenue Service and appropriate state agencies, and, if
required, mail to Shareholders, such notices for reporting
dividends and distributions paid as are required to be so filed
and mailed and shall withhold such sums as are required to be
withheld under applicable federal and state income tax laws,
rules and regulations.
(3) In addition to and not in lieu of the services set forth above,
the Company shall:
(a) Perform all of the customary services of a transfer agent,
dividend disbursing agent and, as relevant, agent in
connection with accumulation, open-account or similar
plans (including without limitation any periodic
investment plan or periodic withdrawal program), including
but not limited to: maintaining all Shareholder accounts,
mailing Shareholder reports and Prospectuses to current
Shareholders, withholding taxes on accounts subject to
back-up or other withholding (including non-resident alien
accounts), preparing and filing reports on U.S. Treasury
Department Form 1099 and other appropriate forms required
with respect to dividends and distributions by federal
authorities for all Shareholders, preparing and mailing
confirmation forms and statements of account to
Shareholders for all purchases and redemptions of Shares
and other confirmable transactions in Shareholder
accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to monitor the
total number of Shares of each Fund and/or Class sold in
each state ("blue sky reporting"). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail proxy
cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such
certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"), the 1940 Act and
any laws, rules and regulations of government authorities having
jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of blank
Share certificates and from time to time shall renew such supply upon
request of the Company. Such blank Share certificates shall be
properly signed, manually or by facsimile, if authorized by the Trust
and shall bear the seal of the Trust or facsimile thereof; and
notwithstanding the death, resignation or removal of any officer of
the Trust authorized to sign certificates, the Company may continue to
countersign certificates which bear the manual or facsimile signature
of such officer until otherwise directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of any
dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as set out in
Schedules C ("C1, C2, C3 etc..."), attached hereto, as may be added or
amended from time to time. Such fees may be changed from time to time
subject to written agreement between the Trust and the Company.
Pursuant to information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund into
Classes or other sub-components for recordkeeping purposes. The
Company will charge the Fund the fees set forth on Schedule C for each
such Class or sub-component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust and/or
Fund agree to reimburse the Company for out-of-pocket expenses or
advances incurred by the Company for the items set out in Schedules D
("D1, D2, D3 etc..."), attached hereto, as may be added or amended
from time to time. In addition, any other expenses incurred by the
Company at the request or with the consent of the Trust and/or the
Fund, will be reimbursed by the appropriate Fund.
C. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to the Trust or each of the Funds as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket expenses
in accordance with Schedules C and Schedules D. The Trust or the
Funds will pay to the Company the amount of such invoice within 30
days following the receipt of the invoices.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of the
other party.
(1) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and
assigns.
(2) The Company may without further consent on the part of the Trust
subcontract for the performance hereof with (A) State Street
Bank and its subsidiary, Boston Financial Data Services, Inc., a
Massachusetts Trust ("BFDS"), which is duly registered as a
transfer agent pursuant to Section 17A(c)(1) of the Securities
Exchange Act of 1934, as amended, or any succeeding statute
("Section 17A(c)(1)"), or (B) a BFDS subsidiary duly registered
as a transfer agent pursuant to Section 17A(c)(1), or (C) a BFDS
affiliate, or (D) such other provider of services duly
registered as a transfer agent under Section 17A(c)(1) as
Company shall select; provided, however, that the Company shall
be as fully responsible to the Trust for the acts and omissions
of any subcontractor as it is for its own acts and omissions; or
(3) The Company shall upon instruction from the Trust subcontract for
the performance hereof with an Agent selected by the Trust,
other than BFDS or a provider of services selected by Company,
as described in (2) above; provided, however, that the Company
shall in no way be responsible to the Trust for the acts and
omissions of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and obtain
custody services from a financial institution that (i) meets the
criteria established in Section 17(f) of the 1940 Act and (ii) has
been approved by the Board as eligible for selection by the Company as
a custodian (the "Eligible Custodian"). The Company accepts such
appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
(1) evaluate the nature and the quality of the custodial services
provided by the Eligible Custodian;
(2) employ the Eligible Custodian to serve on behalf of the Trust as
Custodian of the Trust's assets substantially on the terms set
forth as the form of agreement in Exhibit 2;
(3) negotiate and enter into agreements with the Custodians for the
benefit of the Trust, with the Trust as a party to each such
agreement. The Company shall not be a party to any agreement
with any such Custodian;
(4) establish procedures to monitor the nature and the quality of the
services provided by the Custodians;
(5) continuously monitor the nature and the quality of services
provided by the Custodians; and
(6) periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature and
amount of disbursement made on account of the Trust with respect
to each custodial agreement; and (iii) such other information as
the Board shall reasonably request to enable it to fulfill its
duties and obligations under Sections 17(f) and 36(b) of the
1940 Act and other duties and obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual fee as set forth in Schedule E, attached hereto.
B. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to each of the Trust/or Fund as soon as
practicable at the end of each month. Each invoice will provide
detailed information about the Compensation and out-of-pocket expenses
in occurrence with Schedule E. The Trust and/or Fund will pay to the
Company the amount of such invoice within 30 days following the
receipt of the invoice.
Article 12. Representations.
The Company represents and warrants that it has obtained all required
approvals from all government or regulatory authorities necessary to
enter into this arrangement and to provide the services contemplated
in Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this Agreement,
the Trust shall file with the Company the following documents:
(1) A copy of the Charter and By-Laws of the Trust and all amendments
thereto;
(2) A copy of the resolution of the Board of the Trust authorizing
this Agreement;
(3) Specimens of all forms of outstanding Share certificates of the
Trust or the Funds in the forms approved by the Board of the
Trust with a certificate of the Secretary of the Trust as to
such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to
the sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document and
the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing officers
to give Proper Instructions to the Custodian and agents for fund
accountant, custody services procurement, and shareholder
recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such forms;
(6) Such other certificates, documents or opinions which the Company
may, in its discretion, deem necessary or appropriate in the
proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and by-
laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to authorize
it to enter into and perform its obligations under this
Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements and
in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and By-
Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Trust is an open-end investment company registered under the
1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of each
Fund being offered for sale.
Article 15. Indemnification.
A. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund shall
indemnify and hold the Company, including its officers, directors,
shareholders and their agents employees and affiliates, harmless
against any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liabilities arising out of or attributable to:
(1) The acts or omissions of any Custodian,
(2) The Trust's or Fund's refusal or failure to comply with the terms
of this Agreement, or which arise out of the Trust's or The
Fund's lack of good faith, negligence or willful misconduct or
which arise out of the breach of any representation or warranty
of the Trust or Fund hereunder or otherwise.
(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or subcontractors
and furnished to it by or on behalf of the Fund, its
Shareholders or investors regarding the purchase,
redemption or transfer of Shares and Shareholder account
information; or
(b) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Trust.
(4) The reliance on, or the carrying out by the Company or its agents
or subcontractors of Proper Instructions of the Trust or the
Fund.
(5) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities
laws or regulations of any state that such Shares be registered
in such state or in violation of any stop order or other
determination or ruling by any federal agency or any state with
respect to the offer or sale of such Shares in such state.
Provided, however, that the Company shall not be protected by
this Article 15.A. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or each Fund harmless
from and against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of or
attributable to any action or failure or omission to act by the
Company as a result of the Company's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties.
C. Reliance
At any time the Company may apply to any officer of the Trust or Fund
for instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed by
the Company under this Agreement, and the Company and its agents or
subcontractors shall not be liable and shall be indemnified by the
Trust or the appropriate Fund for any action reasonably taken or
omitted by it in reliance upon such instructions or upon the opinion
of such counsel provided such action is not in violation of applicable
federal or state laws or regulations. The Company, its agents and
subcontractors shall be protected and indemnified in recognizing stock
certificates which are reasonably believed to bear the proper manual
or facsimile signatures of the officers of the Trust or the Fund, and
the proper countersignature of any former transfer agent or registrar,
or of a co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which either
party may be required to indemnify the other, the party seeking
indemnification shall promptly notify the other party of such
assertion, and shall keep the other party advised with respect to all
developments concerning such claim. The party who may be required to
indemnify shall have the option to participate with the party seeking
indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to
indemnify it except with the other party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust
exercise its rights to terminate, all out-of-pocket expenses
associated with the movement of records and materials will be borne by
the Trust or the appropriate Fund. Additionally, the Company reserves
the right to charge for any other reasonable expenses associated with
such termination. The provisions of Article 15 shall survive the
termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this Agreement.
Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Charter. No interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this
Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Company at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-
3779, or to such other address as the Trust or the Company may
hereafter specify, shall be deemed to have been properly delivered or
given hereunder to the respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Trust and signed by an authorized officer of the
Trust, acting as such, and neither such authorization by such Trustees
nor such execution and delivery by such officer shall be deemed to
have been made by any of them individually or to impose any liability
on any of them personally, and the obligations of this Agreement are
not binding upon any of the Trustees or Shareholders of the Trust, but
bind only the appropriate property of the Fund, or Class, as provided
in the Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized by
the Trustees of the Company and signed by an authorized officer of the
Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees or Shareholders of
the Company, but bind only the property of the Company as provided in
the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other
party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to such
successor agent at the office of the Company all properties of the
Trust held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper
Instructions deliver such properties in accordance with such
instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or
before the date when such termination shall become effective, then the
Company shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the 1940 Act, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such
bank or trust company shall be the successor of the Company under this
Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a result
of work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility
of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the prior
written consent of the other party, except that either party may
assign to a successor all of or a substantial portion of its business,
or to a party controlling, controlled by, or under common control with
such party. Nothing in this Article 28 shall prevent the Company from
delegating its responsibilities to another entity to the extent
provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
ATTEST: INVESTMENT COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle By: /s/ John F. Donahue
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By: /s/ James J. Dolan
Jeannette Fisher-Garber James J. Dolan
Secretary President
Schedule A
Fund Accounting
Fee Schedule
I. Portfolio Record Keeping/Fund Accounting Services
Maintain investment ledgers, provide selected portfolio transactions, position
and income reports. Maintain general ledger and capital stock accounts.
Prepare daily trial balance. Provide selected general ledger reports.
Calculate net asset value daily. Securities yield or market value quotations
will be provided to State Street by the fund or via State Street Bank
automated pricing services.
ANNUAL FEES
ASSET
First $250 Million 2.0 Basis Points
Next $250 Million 1.5 Basis Points
Next $250 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $39,000
Additional class of shares per year $12,000
II. Special Services
Fees for activities of a non-recurring nature such as fund consolidation or
reorganization, extraordinary security shipments and the preparation of
special reports will be subject to negotiation.
III. Term of the Contract
The parties agree that this fee schedule shall become effective June 1, 1993
and will remain in effect until it is revised as a result of negotiations
initiated by either party.
Schedule A1
Fund Accounting
Fee Schedule
Annual
First $100 Million 3.0 Basis Points
$100 Million - $300 Million 2.0 Basis Points
$300 Million - $500 Million 1.0 Basis Points
Over $500 Million 0.5 Basis Points
Fund Minimum $39,000
Additional Class of Shares $12,000
(Plus pricing charges and other out-of-pocket expenses)
Schedule B
Out-of-Pocket Expenses
Fund Accounting
Out-of-pocket expenses include, but are not limited to, the
following:
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telephones
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific System Enhancements
- Access to the Shareholder Recordkeeping System
- Security Pricing Services
- Variable Rate Change Notification Services
- Paydown Factor Notification Services
Schedule C
Fees and Expenses
Shareholder Recordkeeping
I. Transfer Agency Services
Base Fee * (Annual fee per fund, class or other subdivision) $24,000
Account Fee* (Annual account charge)
(includes system access and funds control and reconcilement)
- Daily dividend fund $16.00
- Monthly dividend fund $10.00
- Quarterly dividend fund $10.00
- Contingent Deferred Sales Charge (Additionally) $5.00
(monthly and quarterly funds only)
- Closed Accounts* $1.20
(annual)
- Termination Fee (One time charge) $20,000
II. Shareholder Services
Other Account Fees* (Services or features not covered above)
- Account Activity Processing $3.50
(includes account establishment, transaction and maintenance processing)
- Account Servicing $4.50
(includes shareholder servicing and correspondence)
* All fees are annualized and will be prorated on a monthly basis for
billing purposes. Out-of-pocket expenses are not covered by these fees.
Schedule C1
Federated Investors
- Federated Funds -
I. Annual Maintenance Charge
The annual maintenance charge includes the processing of all transactions
and correspondence. The fee is billable on a monthly basis at the rate of
1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes.
Basic Annual per Account Fee
The individual per account charges will be billed as follows:
- Money Market Fund/Daily Accrual $16.65
- Money Market Fund/Sweep Account $10.00
- Fluctuating NAV/Daily Accrual
Non FundServe $16.65
Non Networked FundServe $14.65
- CDSC/Declared Dividend
Non FundServe $13.75
Non Networked FundServe $11.75
Networking Levels 1, 2, and 4 $11.75
Networking Level 3 $9.00
- Declared Dividend
Non FundServe $8.75
Non Networked FundServe $6.75
Networked FundServe Levels 1, 2, 3, and 4 $6.75
Taxpayer Identification Processing (TIN)
The charge for TIN solicitation includes maintenance and certification and
complies to all known government regulations regarding TIN processing.
- Maintenance $.25 per item
- Certification $.10 per item
I. Annual Maintenance Charge (con't.)
Closed Account Fee $.10 per account
per month
(No fee assessed for $0 balance open accounts)
Minimum Charges
- The monthly maintenance charge for each fund will be the actual account
fees or $1000, whichever is greater.
- All funds will be subject to the minimum monthly fee of $1,000 except
that the minimum will be waived for the initial six months or until the
fund's net assets exceed $50,000,000, whichever occurs first.
- The "clone" funds will be subject to a monthly minimum fee of $600.
II. Out-of-Pocket Expenses
Out-of-pocket expenses include but are not limited to: postage, forms,
telephone, microfilm, microfiche, and expenses incurred at the specific
direction of the fund. Postage for mass mailings is due seven days in advance
of the mailing date.
III. Payment
Payment is due thirty days after the date of the invoice.
Schedule C2
Federated Investors
- Bank Proprietary Funds -
I. Annual Maintenance Charge
The annual maintenance charge includes the processing of all transactions and
correspondence. The fee is billable on a monthly basis at the rate of 1/12 of
the annual fee. A charge is made for an account in the month that an account
opens or closes.
Basic Annual per Account Fee
The individual per account charges will be billed as follows:
- Money Market Fund/Daily Accrual $16.65
- Money Market Fund/Sweep Account $10.00
- Fluctuating NAV/Daily Accrual
- Non FundServe $16.65
- Non Networked FundServe $14.65
- CDSC/Declared Dividend
- Non FundServe $13.75
- Non Networked FundServe $11.75
- Networking Levels 1, 2, and 4 $11.75
- Networking Level 3 $9.00
- Declared Dividend
- Non FundServe $8.75
- Non Networked FundServe $6.75
- Networked FundServe Levels 1, 2, 3, and 4 $6.75
Taxpayer Identification Processing (TIN)
The charge for TIN solicitation includes maintenance and certification and
complies to all known government regulations regarding TIN processing.
- Maintenance $.25 per item
- Certification $.10 per item
I. Annual Maintenance Charge (con't.)
Closed Account Fee $.10 per account
per month
(No fee assessed for $0 balance open accounts)
Minimum Charges
- The monthly maintenance charge for each fund will be the actual account
fees or $2000, whichever is greater.
II. Out-of-Pocket Expenses
Out-of-pocket expenses include but are not limited to: postage, forms,
telephone, microfilm, microfiche, and expenses incurred at the specific
direction of the fund. Postage for mass mailings is due seven days in advance
of the mailing date.
III. Payment
Payment is due thirty days after the date of the invoice.
SCHEDULE D
Out-of-Pocket Expenses Schedule
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific Enhancements
- Disaster Recovery
SCHEDULE E
Fee Schedule
I. Custody Services
Maintain Custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income.
Make cash disbursements and report cash transactions. Monitor corporate
actions.
ANNUAL FEES
ASSET
First $500 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $15,000
Wire Fees $2.70 per wire
Settlements:
o Each DTC Commercial Paper $9.00
o Each DTC Transaction $9.00
o Each Federal Reserve Book Entry Transaction (Repo) $4.50
o Each Repo with Banks Other than State Street Bank $7.50
o Each Physical Transaction (NY/Boston, Private Placement) $21.75
o Each Option Written/Exercised/Expired $18.75
o Each Stock Load Transaction $12.00
o Each Book Entry Muni (Sub-custody) Transaction $15.00
o Index Fund/ETD Cost + 15%
II. Out-Of-Pocket Expenses
Telephone
Postage & Insurance
Armored carrier costs
Legal fees
Supplies related to fund records
Processing validation certificates
Forms, envelopes, Xerox copies, supplies, etc.
III. Special Services
Fees for activities of a non-recurring nature such as fund
consolidation or
reorganization, extraordinary security shipments and the
preparation of special
reports will be subject to negotiation.
IV. Coupon Clipping
Monitoring for calls and processing for each monthly issue held
Monthly Charge $5.00
V. Balance Credit
A balance credit equal to 75% of the average balance in the custodian
account for
the monthly billed times the 30-day T-Bill Rate
on the last Monday of the month
billed will be applied against Section I through IV above.
VI. Term of the Contract
The parties agree that this fee schedule shall become effective
June 1, 1993 and
will remain in effect until it is revised as a result of
negotiations initiated
by either party.
EXHIBIT 1
FA=Fund Accounting
SR=Shareholder Recordkeeping
CSP=Custody Services Procurement
CONTRACT SERVICES RELEVANT
DATE INVESTMENT COMPANY PROVIDED SCHEDULES
12/1/93 111 Corcoran Fund
12/1/93 111 Corcoran Bond Fund FA, SR A,B,C,D
12/1/93 111 Corcoran North Carolina Municipal
Securities Fund FA, SR A,B,C,D
12/1/93 American Leaders Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Automated Cash Management Trust FA,SR,CSP A,B,C,D,E
12/1/93 Automated Government Money Trust FA,SR,CSP A,B,C,D,E
01/07/94 BankSouth Select Funds SR, C,D
01/07/94 BankSouth Select Georgia Tax-Free
Income Fund SR, C,D
01/07/94 BankSouth Select Government
Money Market Fund SR, C,D
01/07/94 BankSouth Select Prime Money Market Fund SR, C,D
01/07/94 BankSouth Select Bond Fund SR, C,D
01/07/94 BankSouth Select Equity Fund SR, C,D
12/1/93 BayFunds FA A1,B
12/1/93 BayFunds Money Market Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Bond Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Equity Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Short-Term Yield Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds U.S. Treasury Money Market Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 The Biltmore Funds FA A1,B
12/1/93 Biltmore Balanced Fund FA A1,B
12/1/93 Biltmore Equity Fund FA A1,B
12/1/93 Biltmore Fixed Income Fund FA A1,B
12/1/93 Biltmore Equity Index Fund FA A1,B
12/1/93 Biltmore Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore Prime Cash Management Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Biltmore Short-Term Fixed Income Fund FA A1,B
12/1/93 Biltmore Special Values Fund FA A1,B
12/1/93 Biltmore Tax-Free Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore U.S. Treasury Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore Quantitative Equity Fund FA A1,B
12/1/93 The Boulevard Funds FA,SR A1,B,C,D
12/1/93 Boulevard Blue Chip Growth Fund FA,SR A1,B,C,D
12/1/93 Boulevard Managed Income Fund FA,SR A1,B,C,D
12/1/93 Boulevard Managed Municipal Fund FA,SR A1,B,C,D
12/1/93 Boulevard Strategic Balanced Fund FA,SR A1,B,C,D
12/1/93 California Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Trust Series, Inc.
12/1/93 Government Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Municipal Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Prime Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Treasury Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Cash Trust Series II
12/1/93 Municipal Cash Series II FA,SR,CSP A,B,C,D,E
12/1/93 Treasury Cash Series II FA,SR,CSP A,B,C,D,E
12/1/93 DG Investor Series
12/1/93 DG Equity Fund FA,SR A1,B,C,D
12/1/93 DG Government Income Fund FA,SR A1,B,C,D
12/1/93 DG Limited Term Government Income Fund FA,SR A1,B,C,D
12/1/93 DG Municipal Income Fund FA,SR A1,B,C,D
12/1/93 DG U.S. Government Money Market Fund FA,SR A1,B,C,D
12/1/93 Federated ARMs Fund
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Federated Exchange Fund, Ltd. FA,SR,CSP A,B,C,D,E
12/1/93 Federated GNMA Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Government Trust
12/1/93 Automated Government Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Automated Treasury Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 U.S. Treasury Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Federated Growth Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated High Yield Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated Income Securities Trust
12/1/93 Federated Short-Term Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Intermediate Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Income Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Index Trust
12/1/93 Max-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Mid-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Mini-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Federated Intermediate Government Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Investment Funds
12/1/93 Growth Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 High Quality Bond Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Intermediate Municipal
Income Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Value Equity Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Federated Master Trust
12/1/93 Federated Municipal Trust
12/1/93 Alabama Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Connecticut Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Massachusetts Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 BayFund Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Minnesota Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 New Jersey Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash II Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Virginia Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Intermediate Government Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Intermediate Municipal Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Term U.S. Government Trust FA,SR,CSP A,B,C,D,E
12/1/93 Stock and Bond Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Stock Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated Tax-Free Trust FA,SR,CSP A,B,C,D,E
12/1/93 Financial Reserves Fund FA A1,B
12/1/93 First Priority Funds
12/1/93 First Priority Equity Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 First Priority Fixed Income Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 First Priority Treasury Money Market Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 Limited Maturity Government Fund FA,SR A1,B,C,D
12/1/93 Fixed Income Securities, Inc.
12/1/93 Limited Term Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Limited Term Municipal Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Multi-State Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Limited Maturity Government Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Adjustable Rate U.S. Government
Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Municipal Income Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Utility Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 FT Series, Inc.
12/1/93 International Equity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 International Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fund for U.S. Government Securities, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Government Income Securities, Inc. FA,SR,CSP A,B,C,D,E
1/11/94 Insight Institutional Series, Inc.
1/11/94 Insight Adjustable Rate Mortgage Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight Limited Term Income Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight Limited Term Municipal Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight U.S. Government Fund FA,SR,CSP A,B,C1,D,E
12/1/93 Intermediate Municipal Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Intermediate Municipal Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Intermediate Municipal Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Series Fund, Inc.
12/1/93 Capital Growth Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Series Trust
12/1/93 High Quality Stock Fund FA,SR,CSP A,B,C,D,E
12/1/93 Municipal Securities Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 U.S. Government Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Edward D. Jones & Co. Daily Passport
Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Equity Income Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty High Income Bond Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Municipal Securities Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Term Trust, Inc. - 1999 FA,SR,CSP A,B,C,D,E
12/1/93 Liberty U.S. Government Money Market Trust FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Utility Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liquid Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Star Funds
12/1/93 Star Prime Obligations Fund FA,SR A,B,C,D
12/1/93 Star Relative Value Fund FA,SR A,B,C,D
12/1/93 Star Tax-Free Money Market Fund FA,SR A,B,C,D
12/1/93 Star Treasury Fund FA,SR A,B,C,D
12/1/93 Star U.S. Government Income Fund FA,SR A,B,C,D
12/1/93 The Stellar Fund FA,SR A,B,C,D
12/1/93 Magna Funds
12/1/93 Magna Intermediate Government Fund SR C,D
12/1/93 Mark Twain Funds
12/1/93 Mark Twain Equity Portfolio FA,SR A,B,C,D
12/1/93 Mark Twain Fixed Income Portfolio FA,SR A,B,C,D
12/1/93 Mark Twain Government Money Market
Portfolio FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Mark Twain Municipal Income Portfolio FA,SR A,B,C,D
12/1/93 Marshall Funds, Inc.
12/1/93 Marshall Government Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Intermediate Bond Fund FA,SR A1,B,C,D
12/1/93 Marshall Money Market Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 Marshall Short-Term Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Stock Fund FA,SR A1,B,C,D
12/1/93 Marshall Tax-Free Money Market Fund FA,SR A1,B,C,D
12/1/93 Marshall Balanced Fund FA,SR A1,B,C,D
12/1/93 Marshall Equity Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Mid-Cap Stock Fund FA,SR A1,B,C,D
12/1/93 Marshall Value Equity Fund FA,SR A1,B,C,D
12/1/93 Marshal Short-Intermediate Tax-free Fund FA,SR A1,B,C,D
12/1/93 Money Market Management, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Money Market Trust FA,SR,CSP A,B,C,D,E
12/1/93 Money Market Obligations Trust
12/1/93 Government Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Prime Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Tax-Free Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Treasury Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Municipal Securities Income Trust
12/1/93 California Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Florida Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Maryland Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Michigan Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New Jersey Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New York Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust Shares FA,SR,CSP A,B,C,D,E
12/1/93 Income shares FA,SR,CSP A,B,C,D,E
12/1/93 Texas Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Virginia Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New York Municipal Cash Trust
12/1/93 Cash II Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 The Planters Funds
12/1/93 Tennessee Tax-Free Bond Fund FA,SR A1,B,C,D
12/1/93 Portage Funds
12/1/93 Portage Government Money Market Fund SR C,D
12/1/93 Investment Shares SR C,D
12/1/93 Trust Shares SR C,D
12/1/93 RIMCO Monument Funds
12/1/93 RIMCO Monument Bond Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument Prime Money Market Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument Stock Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument U.S. Treasury Money
Market Fund FA,SR A,B,C,D
12/1/93 Signet Select Funds
12/1/93 Maryland Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Treasury Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 U.S. Government Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Value Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Virginia Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Funds
12/1/93 The Shawmut Fixed Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Growth Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Growth and Income Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Intermediate Government Income
Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Limited Term Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Prime Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Small Capitalization Equity
Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Connecticut Municipal Money
Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Connecticut Intermediate
Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Shawmut Massachusetts Municipal
Money Market Fund FA,SR A,B,C,D
12/1/93 The Shawmut Massachusetts Intermediate
Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Funds
12/1/93 The Starburst Government Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Government Money Market
Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Starburst Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Starburst Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Funds II
12/1/93 The Starburst Quality Income Fund FA,SR A,B,C,D
12/1/93 Tax-Free Instruments Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trademark Funds
12/1/93 Trademark Equity Fund FA,SR A,B,C,D
12/1/93 Trademark Government Income Fund FA,SR A,B,C,D
12/1/93 Trademark Kentucky Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Trademark Short-Intermediate Government
Fund FA,SR A,B,C,D
12/1/93 Trust for Financial Institutions
12/1/93 Government Qualifying Liquidity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Short-Term Government Qualifying
Liquidity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Government Money Market Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust for Government Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Trust for Short-Term U.S. Government
Securities FA,SR,CSP A,B,C,D,E
12/1/93 Trust for U.S. Treasury Obligations FA,SR,CSP A,B,C,D,E
12/1/93 Vulcan Funds
12/1/93 Vulcan Bond Fund FA,SR A1,B,C,D
12/1/93 Vulcan Stock Fund FA,SR A1,B,C,D
12/1/93 Vulcan Treasury Obligations Money
Market Fund FA,SR A1,B,C,D
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It 1
2. Duties of the Custodian With Respect to Property
of the Funds Held by the Custodian 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 5
2.4 Bank Accounts 6
2.5 Payments for Shares 7
2.6 Availability of Federal Funds 7
2.7 Collection of Income 7
2.8 Payment of Fund Moneys 8
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased. 9
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund 9
2.11 Appointment of Agents 10
2.12 Deposit of Fund Assets in Securities System 10
2.13 Segregated Account 12
2.14 Joint Repurchase Agreements 13
2.15 Ownership Certificates for Tax Purposes 13
2.16 Proxies 13
2.17 Communications Relating to Fund Portfolio Securities 13
2.18 Proper Instructions 14
2.19 Actions Permitted Without Express Authority 14
2.20 Evidence of Authority 15
2.21 Notice to Trust by Custodian Regarding Cash Movement. 15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 15
4. Records 16
5. Opinion of Funds' Independent Public Accountants/Auditors 16
6. Reports to Trust by Independent Public Accountants/Auditors 17
7. Compensation of Custodian 17
8. Responsibility of Custodian 17
9. Effective Period, Termination and Amendment 19
10. Successor Custodian 20
11. Interpretive and Additional Provisions 21
12. Massachusetts Law to Apply 22
13. Notices 22
14. Counterparts 22
15. Limitations of Liability 22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as
it may be amended from time to time, (the "Trust"), which may be
Massachusetts business trusts or Maryland corporations or have such other
form of organization as may be indicated, on behalf of the portfolios
(hereinafter collectively called the "Funds" and individually referred to
as a "Fund") of the Trust, having its principal place of business at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, and
STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company,
having its principal place of business at 225 Franklin Street, Boston,
Massachusetts, 02110, hereinafter called the "Custodian", and FEDERATED
SERVICES COMPANY, a Delaware Fusiness trust company, having its principal
place of business at Federated Investors Tower, Pittsburgh, Pennsylvania,
15222-3779, hereinafter called ("Company").
WITNESSETH: That in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the assets
of each of the Funds of the Trust. Except as otherwise expressly
provided herein, the securities and other assets of each of the
Funds shall be segregated from the assets of each of the other Funds
and from all other persons and entities. The Trust will deliver to
the Custodian all securities and cash owned by the Funds and all
payments of income, payments of principal or capital distributions
received by them with respect to all securities owned by the Funds
from time to time, and the cash consideration received by them for
shares ("Shares") of beneficial interest/capital stock of the Funds
as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of the Funds held or received by the
Funds and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Section
2.18), the Custodian shall from time to time employ one or more sub-
custodians upon the terms specified in the Proper Instructions,
provided that the Custodian shall have no more or less
responsibility or liability to the Trust or any of the Funds on
account of any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian.
2.Duties of the Custodian With Respect to Property of the Funds Held by
the Custodian
2.1Holding Securities. The Custodian shall hold and physically segr
egate for the account of each Fund all non-cash property,
including all securities owned by each Fund, other than
securities which are maintained pursuant to Section 2.12 in a
clearing agency which acts as a securities depository or in a
book-entry system authorized by the U.S. Department of the
Treasury, collectively referred to herein as "Securities
System", or securities which are subject to a joint repurchase
agreement with affiliated funds pursuant to Section 2.14. The
Custodian shall maintain records of all receipts, deliveries and
locations of such securities, together with a current inventory
thereof, and shall conduct periodic physical inspections of
certificates representing stocks, bonds and other securities
held by it under this Contract in such manner as the Custodian
shall determine from time to time to be advisable in order to
verify the accuracy of such inventory. With respect to
securities held by any agent appointed pursuant to Section 2.11
hereof, and with respect to securities held by any sub-custodian
appointed pursuant to Section 1 hereof, the Custodian may rely
upon certificates from such agent as to the holdings of such
agent and from such sub-custodian as to the holdings of such sub-
custodian, it being understood that such reliance in no way
relieves the Custodian of its responsibilities under this
Contract. The Custodian will promptly report to the Trust the
results of such inspections, indicating any shortages or
discrepancies uncovered thereby, and take appropriate action to
remedy any such shortages or discrepancies.
2.2Delivery of Securities. The Custodian shall release and deliver
securities owned by a Fund held by the Custodian or in a
Securities System account of the Custodian only upon receipt of
Proper Instructions, which may be continuing instructions when
deemed appropriate by the parties, and only in the following
cases:
(1)Upon sale of such securities for the account of a Fund and r
eceipt of payment therefor;
(2)Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the
Trust;
(3)In the case of a sale effected through a Securities System,
in accordance with the provisions of Section 2.12 hereof;
(4)To the depository agent in connection with tender or other s
imilar offers for portfolio securities of a Fund, in
accordance with the provisions of Section 2.17 hereof;
(5)To the issuer thereof or its agent when such securities are
called, redeemed, retired or otherwise become payable;
provided that, in any such case, the cash or other
consideration is to be delivered to the Custodian;
(6)To the issuer thereof, or its agent, for transfer into the n
ame of a Fund or into the name of any nominee or nominees
of the Custodian or into the name or nominee name of any
agent appointed pursuant to Section 2.11 or into the name
or nominee name of any sub-custodian appointed pursuant to
Section 1; or for exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in
any such case, the new securities are to be delivered to
the Custodian;
(7)Upon the sale of such securities for the account of a Fund,
to the broker or its clearing agent, against a receipt, for
examination in accordance with "street delivery custom";
provided that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from the
delivery of such securities prior to receiving payment for
such securities except as may arise from the Custodian's
own failure to act in accordance with the standard of
reasonable care or any higher standard of care imposed upon
the Custodian by any applicable law or regulation if such
above-stated standard of reasonable care were not part of
this Contract;
(8)For exchange or conversion pursuant to any plan of merger, c
onsolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any deposit
agreement; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
(9)In the case of warrants, rights or similar securities, the s
urrender thereof in the exercise of such warrants, rights
or similar securities or the surrender of interim receipts
or temporary securities for definitive securities; provided
that, in any such case, the new securities and cash, if
any, are to be delivered to the Custodian;
(10)For delivery in connection with any loans of portfolio secu
rities of a Fund, but only against receipt of adequate
collateral in the form of (a) cash, in an amount specified
by the Trust, (b) certificated securities of a description
specified by the Trust, registered in the name of the Fund
or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, or (c)
securities of a description specified by the Trust,
transferred through a Securities System in accordance with
Section 2.12 hereof;
(11)For delivery as security in connection with any borrowings
requiring a pledge of assets by a Fund, but only against
receipt of amounts borrowed, except that in cases where
additional collateral is required to secure a borrowing
already made, further securities may be released for the
purpose;
(12)For delivery in accordance with the provisions of any agree
ment among the Trust or a Fund, the Custodian and a broker-
dealer registered under the Securities Exchange Act of
1934, as amended, (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The Options
Clearing Corporation and of any registered national
securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in
connection with transactions for a Fund;
(13)For delivery in accordance with the provisions of any agree
ment among the Trust or a Fund, the Custodian, and a
Futures Commission Merchant registered under the Commodity
Exchange Act, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations,
regarding account deposits in connection with transaction
for a Fund;
(14)Upon receipt of instructions from the transfer agent ("Tran
sfer Agent") for a Fund, for delivery to such Transfer
Agent or to the holders of shares in connection with
distributions in kind, in satisfaction of requests by
holders of Shares for repurchase or redemption; and
(15)For any other proper corporate purpose, but only upon recei
pt of, in addition to Proper Instructions, a certified copy
of a resolution of the Executive Committee of the Trust on
behalf of a Fund signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth
the purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate purpose,
and naming the person or persons to whom delivery of such
securities shall be made.
2.3 Registration of Securities. Securities held by the Custodian (o
ther than bearer securities) shall be registered in the name of
a particular Fund or in the name of any nominee of the Fund or
of any nominee of the Custodian which nominee shall be assigned
exclusively to the Fund, unless the Trust has authorized in
writing the appointment of a nominee to be used in common with
other registered investment companies affiliated with the Fund,
or in the name or nominee name of any agent appointed pursuant
to Section 2.11 or in the name or nominee name of any sub-
custodian appointed pursuant to Section 1. All securities
accepted by the Custodian on behalf of a Fund under the terms of
this Contract shall be in "street name" or other good delivery
form.
2.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts in the name of each Fund, subject only
to draft or order by the Custodian acting pursuant to the terms
of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from
or for the account of each Fund, other than cash maintained in a
joint repurchase account with other affiliated funds pursuant to
Section 2.14 of this Contract or by a particular Fund in a bank
account established and used in accordance with Rule 17f-3 under
the Investment Company Act of 1940, as amended, (the "1940
Act"). Funds held by the Custodian for a Fund may be deposited
by it to its credit as Custodian in the Banking Department of
the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; provided,
however, that every such bank or trust company shall be
qualified to act as a custodian under the 1940 Act and that each
such bank or trust company and the funds to be deposited with
each such bank or trust company shall be approved by vote of a
majority of the Board of Trustees/Directors ("Board") of the
Trust. Such funds shall be deposited by the Custodian in its
capacity as Custodian for the Fund and shall be withdrawable by
the Custodian only in that capacity. If requested by the Trust,
the Custodian shall furnish the Trust, not later than twenty
(20) days after the last business day of each month, an internal
reconciliation of the closing balance as of that day in all
accounts described in this section to the balance shown on the
daily cash report for that day rendered to the Trust.
2.5Payments for Shares. The Custodian shall make such arrangements
with the Transfer Agent of each Fund, as will enable the
Custodian to receive the cash consideration due to each Fund and
will deposit into each Fund's account such payments as are
received from the Transfer Agent. The Custodian will provide
timely notification to the Trust and the Transfer Agent of any
receipt by it of payments for Shares of the respective Fund.
2.6Availability of Federal Funds. Upon mutual agreement between the
Trust and the Custodian, the Custodian shall make federal funds
available to the Funds as of specified times agreed upon from
time to time by the Trust and the Custodian in the amount of
checks, clearing house funds, and other non-federal funds
received in payment for Shares of the Funds which are deposited
into the Funds' accounts.
2.7 Collection of Income.
(1)The Custodian shall collect on a timely basis all income and
other payments with respect to registered securities held
hereunder to which each Fund shall be entitled either by
law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other
payments with respect to bearer securities if, on the date
of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such
income, as collected, to each Fund's custodian account.
Without limiting the generality of the foregoing, the
Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when
they become due and shall collect interest when due on
securities held hereunder. The collection of income due
the Funds on securities loaned pursuant to the provisions
of Section 2.2 (10) shall be the responsibility of the
Trust. The Custodian will have no duty or responsibility
in connection therewith, other than to provide the Trust
with such information or data as may be necessary to assist
the Trust in arranging for the timely delivery to the
Custodian of the income to which each Fund is properly
entitled.
(2)The Custodian shall promptly notify the Trust whenever income
due on securities is not collected in due course and will
provide the Trust with monthly reports of the status of
past due income unless the parties otherwise agree.
2.8Payment of Fund Moneys. Upon receipt of Proper Instructions, whi
ch may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of each Fund in the
following cases only:
(1)Upon the purchase of securities, futures contracts or options
on futures contracts for the account of a Fund but only (a)
against the delivery of such securities, or evidence of
title to futures contracts, to the Custodian (or any bank,
banking firm or trust company doing business in the United
States or abroad which is qualified under the 1940 Act to
act as a custodian and has been designated by the Custodian
as its agent for this purpose) registered in the name of
the Fund or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper form for
transfer, (b) in the case of a purchase effected through a
Securities System, in accordance with the conditions set
forth in Section 2.12 hereof or (c) in the case of
repurchase agreements entered into between the Trust and
any other party, (i) against delivery of the securities
either in certificate form or through an entry crediting
the Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to repurchase
such securities from the Fund;
(2)In connection with conversion, exchange or surrender of secu
rities owned by a Fund as set forth in Section 2.2 hereof;
(3)For the redemption or repurchase of Shares of a Fund issued
by the Trust as set forth in Section 2.10 hereof;
(4)For the payment of any expense or liability incurred by a Fu
nd, including but not limited to the following payments for
the account of the Fund: interest; taxes; management,
accounting, transfer agent and legal fees; and operating
expenses of the Fund, whether or not such expenses are to
be in whole or part capitalized or treated as deferred
expenses;
(5)For the payment of any dividends on Shares of a Fund declared
pursuant to the governing documents of the Trust;
(6)For payment of the amount of dividends received in respect of
securities sold short;
(7)For any other proper purpose, but only upon receipt of, in a
ddition to Proper Instructions, a certified copy of a
resolution of the Executive Committee of the Trust on
behalf of a Fund signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth the
purpose for which such payment is to be made, declaring
such purpose to be a proper purpose, and naming the person
or persons to whom such payment is to be made.
2.9Liability for Payment in Advance of Receipt of Securities Purchas
ed. In any and every case where payment for purchase of
securities for the account of a Fund is made by the Custodian in
advance of receipt of the securities purchased, in the absence
of specific written instructions from the Trust to so pay in
advance, the Custodian shall be absolutely liable to the Fund
for such securities to the same extent as if the securities had
been received by the Custodian.
2.10Payments for Repurchases or Redemptions of Shares of a Fund. Fr
om such funds as may be available for the purpose of
repurchasing or redeeming Shares of a Fund, but subject to the
limitations of the Declaration of Trust/Articles of
Incorporation and any applicable votes of the Board of the Trust
pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for
payment to holders of shares of such Fund who have delivered to
the Transfer Agent a request for redemption or repurchase of
their shares including without limitation through bank drafts,
automated clearinghouse facilities, or by other means. In
connection with the redemption or repurchase of Shares of the
Funds, the Custodian is authorized upon receipt of instructions
from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders.
2.11Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other
bank or trust company which is itself qualified under the 1940
Act and any applicable state law or regulation, to act as a
custodian, as its agent to carry out such of the provisions of
this Section 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
2.12Deposit of Fund Assets in Securities System. The Custodian may
deposit and/or maintain securities owned by the Funds in a
clearing agency registered with the Securities and Exchange
Commission ("SEC") under Section 17A of the Exchange Act, which
acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and
SEC rules and regulations, if any, and subject to the following
provisions:
(1)The Custodian may keep securities of each Fund in a Securities System
provided that such securities are represented in an account ("Account")
of the Custodian in the Securities System which shall not include any assets
of the Custodian other than
assets held as a fiduciary, custodian or otherwise for customers;
(2)The records of the Custodian with respect to securities of the Funds
which are maintained in a Securities System shall identify by book-entry
those securities belonging to each Fund;
(3)The Custodian shall pay for securities purchased for the account of each
Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such payment and transfer for
the account of the Fund. The Custodian shall transfer securities sold for the
account of a Fund upon (i) receipt of advice from the Securities System that
payment for such securities has been transferred to the Account, and (ii) the
making of an entry on the records of the Custodian to reflect such transfer
and payment for the account of the Fund. Co all advices from the Securities
System of transfers of securities for the a Fund shall identify the Fund, be
maintained for the Fund by the Custodian an provided to the Trust at its
request. Upon request, the Custodian shall further Trust confirmation of
each transfer to or from the account of a Fund in written advice or notice
and shall furnish to the Trust copies of daily sheets reflecting each day's
transactions in the Securities System for th a Fund.
(4)The Custodian shall provide the Trust with any report obtained by the
Custodian on the Securities System's accounting system, internal accounting
control and procedures for safeguarding securities deposited in the
Securities System;
(5)The Custodian shall have received the initial certificate, required by
Section 9 hereof;
(6)Anything to the contrary in this Contract notwithstanding, the Custodian
shall be liable to the Trust for any loss or damage to a Fund resulting from
use of the Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or their
employees or from failure of the Custodian or any such agent to enforce
effectively such rights as it may have against the Securities System; at
the election of the Trust, it shall be entitled to the rights of the
Custodian with respect to any claim against the Securities or any other person
which the Custodian may have as a consequence of damage if and to the extent
that a Fund has not been made whole for any damage.
(7)The authorization contained in this Section 2.12 shall not relieve the
Custodian from using reasonable care and diligence in making use of any
Securities System.
2.13Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or
accounts for and on behalf of each Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.12 hereof, (i) in accordance with the provisions of
any agreement among the Trust, the Custodian and a broker-dealer
registered under the Exchange Act and a member of the NASD (or
any futures commission merchant registered under the Commodity
Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading Commission
or any registered contract market), or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions for a Fund, (ii)
for purpose of segregating cash or government securities in
connection with options purchased, sold or written for a Fund or
commodity futures contracts or options thereon purchased or sold
for a Fund, (iii) for the purpose of compliance by the Trust or
a Fund with the procedures required by any release or releases
of the SEC relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
corporate purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions, a certified copy
of a resolution of the Board or of the Executive Committee
signed by an officer of the Trust and certified by the Secretary
or an Assistant Secretary, setting forth the purpose or purposes
of such segregated account and declaring such purposes to be
proper corporate purposes.
2.14Joint Repurchase Agreements. Upon the receipt of Proper Instruc
tions, the Custodian shall deposit and/or maintain any assets of
a Fund and any affiliated funds which are subject to joint
repurchase transactions in an account established solely for
such transactions for the Fund and its affiliated funds. For
purposes of this Section 2.14, "affiliated funds" shall include
all investment companies and their portfolios for which
subsidiaries or affiliates of Federated Investors serve as
investment advisers, distributors or administrators in
accordance with applicable exemptive orders from the SEC. The
requirements of segregation set forth in Section 2.1 shall be
deemed to be waived with respect to such assets.
2.15Ownership Certificates for Tax Purposes. The Custodian shall ex
ecute ownership and other certificates and affidavits for all
federal and state tax purposes in connection with receipt of
income or other payments with respect to securities of a Fund
held by it and in connection with transfers of securities.
2.16Proxies. The Custodian shall, with respect to the securities he
ld hereunder, cause to be promptly executed by the registered
holder of such securities, if the securities are registered
otherwise than in the name of a Fund or a nominee of a Fund, all
proxies, without indication of the manner in which such proxies
are to be voted, and shall promptly deliver to the Trust such
proxies, all proxy soliciting materials and all notices relating
to such securities.
2.17Communications Relating to Fund Portfolio Securities. The Custo
dian shall transmit promptly to the Trust all written
information (including, without limitation, pendency of calls
and maturities of securities and expirations of rights in
connection therewith and notices of exercise of call and put
options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the
Custodian from issuers of the securities being held for the
Fund. With respect to tender or exchange offers, the Custodian
shall transmit promptly to the Trust all written information
received by the Custodian from issuers of the securities whose
tender or exchange is sought and from the party (or his agents)
making the tender or exchange offer. If the Trust desires to
take action with respect to any tender offer, exchange offer or
any other similar transaction, the Trust shall notify the
Custodian in writing at least three business days prior to the
date on which the Custodian is to take such action. However,
the Custodian shall nevertheless exercise its best efforts to
take such action in the event that notification is received
three business days or less prior to the date on which action is
required.
2.18Proper Instructions. Proper Instructions as used throughout this
Section 2 means a writing signed or initialed by one or more
person or persons as the Board shall have from time to time
authorized. Each such writing shall set forth the specific
transaction or type of transaction involved. Oral instructions
will be deemed to be Proper Instructions if (a) the Custodian
reasonably believes them to have been given by a person
previously authorized in Proper Instructions to give such
instructions with respect to the transaction involved, and (b)
the Trust promptly causes such oral instructions to be confirmed
in writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board of
the Trust accompanied by a detailed description of procedures
approved by the Board, Proper Instructions may include
communications effected directly between electro-mechanical or
electronic devices provided that the Board and the Custodian are
satisfied that such procedures afford adequate safeguards for a
Fund's assets.
2.19Actions Permitted Without Express Authority. The Custodian may
in its discretion, without express authority from the Trust:
(1)make payments to itself or others for minor expenses of hand
ling securities or other similar items relating to its
duties under this Contract, provided that all such payments
shall be accounted for to the Trust in such form that it
may be allocated to the affected Fund;
(2)surrender securities in temporary form for securities in def
initive form;
(3)endorse for collection, in the name of a Fund, checks, drafts
and other negotiable instruments; and
(4)in general, attend to all non-discretionary details in conne
ction with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and
property of each Fund except as otherwise directed by the
Trust.
2.20Evidence of Authority. The Custodian shall be protected in acti
ng upon any instructions, notice, request, consent, certificate
or other instrument or paper reasonably believed by it to be
genuine and to have been properly executed on behalf of a Fund.
The Custodian may receive and accept a certified copy of a vote
of the Board of the Trust as conclusive evidence (a) of the
authority of any person to act in accordance with such vote or
(b) of any determination of or any action by the Board pursuant
to the Declaration of Trust/Articles of Incorporation as
described in such vote, and such vote may be considered as in
full force and effect until receipt by the Custodian of written
notice to the contrary.
2.21Notice to Trust by Custodian Regarding Cash Movement. The Custo
dian will provide timely notification to the Trust of any
receipt of cash, income or payments to the Trust and the release
of cash or payment by the Trust.
3.Duties of Custodian With Respect to the Books of Account and Calculati
on of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary information to t
he entity or entities appointed by the Board of the Trust to keep
the books of account of each Fund and/or compute the net asset value
per share of the outstanding Shares of each Fund or, if directed in
writing to do so by the Trust, shall itself keep such books of
account and/or compute such net asset value per share. If so
directed, the Custodian shall also calculate daily the net income of
a Fund as described in the Fund's currently effective prospectus and
Statement of Additional Information ("Prospectus") and shall advise
the Trust and the Transfer Agent daily of the total amounts of such
net income and, if instructed in writing by an officer of the Trust
to do so, shall advise the Transfer Agent periodically of the
division of such net income among its various components. The
calculations of the net asset value per share and the daily income
of a Fund shall be made at the time or times described from time to
time in the Fund's currently effective Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to its
activities and obligations under this Contract in such manner as
will meet the obligations of the Trust and the Funds under the 1940
Act, with particular attention to Section 31 thereof and Rules 31a-1
and 31a-2 thereunder, and specifically including identified cost
records used for tax purposes. All such records shall be the
property of the Trust and shall at all times during the regular
business hours of the Custodian be open for inspection by duly
authorized officers, employees or agents of the Trust and employees
and agents of the SEC. In the event of termination of this
Contract, the Custodian will deliver all such records to the Trust,
to a successor Custodian, or to such other person as the Trust may
direct. The Custodian shall supply daily to the Trust a tabulation
of securities owned by a Fund and held by the Custodian and shall,
when requested to do so by the Trust and for such compensation as
shall be agreed upon between the Trust and the Custodian, include
certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may from
time to time request, to obtain from year to year favorable opinions
from each Fund's independent public accountants/auditors with
respect to its activities hereunder in connection with the
preparation of the Fund's registration statement, periodic reports,
or any other reports to the SEC and with respect to any other
requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust may
reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system,
internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian for the
Fund under this Contract; such reports shall be of sufficient scope
and in sufficient detail, as may reasonably be required by the
Trust, to provide reasonable assurance that any material
inadequacies would be disclosed by such examination and, if there
are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time
between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in
carrying out the provisions of this Contract; provided, however,
that the Custodian shall be held to any higher standard of care
which would be imposed upon the Custodian by any applicable law or
regulation if such above stated standard of reasonable care was not
part of this Contract. The Custodian shall be entitled to rely on
and may act upon advice of counsel (who may be counsel for the
Trust) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice, provided that
such action is not in violation of applicable federal or state laws
or regulations, and is in good faith and without negligence.
Subject to the limitations set forth in Section 15 hereof, the
Custodian shall be kept indemnified by the Trust but only from the
assets of the Fund involved in the issue at hand and be without
liability for any action taken or thing done by it in carrying out
the terms and provisions of this Contract in accordance with the
above standards.
In order that the indemnification provisions contained in this
Section 8 shall apply, however, it is understood that if in any case
the Trust may be asked to indemnify or save the Custodian harmless,
the Trust shall be fully and promptly advised of all pertinent facts
concerning the situation in question, and it is further understood
that the Custodian will use all reasonable care to identify and
notify the Trust promptly concerning any situation which presents or
appears likely to present the probability of such a claim for
indemnification. The Trust shall have the option to defend the
Custodian against any claim which may be the subject of this
indemnification, and in the event that the Trust so elects it will
so notify the Custodian and thereupon the Trust shall take over
complete defense of the claim, and the Custodian shall in such
situation initiate no further legal or other expenses for which it
shall seek indemnification under this Section. The Custodian shall
in no case confess any claim or make any compromise in any case in
which the Trust will be asked to indemnify the Custodian except with
the Trust's prior written consent.
Notwithstanding the foregoing, the responsibility of the Custodian
with respect to redemptions effected by check shall be in accordance
with a separate Agreement entered into between the Custodian and the
Trust.
If the Trust requires the Custodian to take any action with respect
to securities, which action involves the payment of money or which
action may, in the reasonable opinion of the Custodian, result in
the Custodian or its nominee assigned to a Fund being liable for the
payment of money or incurring liability of some other form, the
Custodian may request the Trust, as a prerequisite to requiring the
Custodian to take such action, to provide indemnity to the Custodian
in an amount and form satisfactory to the Custodian.
Subject to the limitations set forth in Section 15 hereof, the Trust
agrees to indemnify and hold harmless the Custodian and its nominee
from and against all taxes, charges, expenses, assessments, claims
and liabilities (including counsel fees) (referred to herein as
authorized charges) incurred or assessed against it or its nominee
in connection with the performance of this Contract, except such as
may arise from it or its nominee's own failure to act in accordance
with the standard of reasonable care or any higher standard of care
which would be imposed upon the Custodian by any applicable law or
regulation if such above-stated standard of reasonable care were not
part of this Contract. To secure any authorized charges and any
advances of cash or securities made by the Custodian to or for the
benefit of a Fund for any purpose which results in the Fund
incurring an overdraft at the end of any business day or for
extraordinary or emergency purposes during any business day, the
Trust hereby grants to the Custodian a security interest in and
pledges to the Custodian securities held for the Fund by the
Custodian, in an amount not to exceed 10 percent of the Fund's gross
assets, the specific securities to be designated in writing from
time to time by the Trust or the Fund's investment adviser. Should
the Trust fail to make such designation, or should it instruct the
Custodian to make advances exceeding the percentage amount set forth
above and should the Custodian do so, the Trust hereby agrees that
the Custodian shall have a security interest in all securities or
other property purchased for a Fund with the advances by the
Custodian, which securities or property shall be deemed to be
pledged to the Custodian, and the written instructions of the Trust
instructing their purchase shall be considered the requisite
description and designation of the property so pledged for purposes
of the requirements of the Uniform Commercial Code. Should the
Trust fail to cause a Fund to repay promptly any authorized charges
or advances of cash or securities, subject to the provision of the
second paragraph of this Section 8 regarding indemnification, the
Custodian shall be entitled to use available cash and to dispose of
pledged securities and property as is necessary to repay any such
advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner than sixty
(60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.12 hereof
in the absence of receipt of an initial certificate of the Secretary
or an Assistant Secretary that the Board of the Trust has approved
the initial use of a particular Securities System as required in
each case by Rule 17f-4 under the 1940 Act; provided further,
however, that the Trust shall not amend or terminate this Contract
in contravention of any applicable federal or state regulations, or
any provision of the Declaration of Trust/Articles of Incorporation,
and further provided, that the Trust may at any time by action of
its Board (i) substitute another bank or trust company for the
Custodian by giving notice as described above to the Custodian, or
(ii) immediately terminate this Contract in the event of the
appointment of a conservator or receiver for the Custodian by the
appropriate banking regulatory agency or upon the happening of a
like event at the direction of an appropriate regulatory agency or
court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the
Trust, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed
and in the form for transfer, all securities then held by it
hereunder for each Fund and shall transfer to separate accounts of
the successor custodian all of each Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote of
the Board of the Trust, deliver at the office of the Custodian and
transfer such securities, funds and other properties in accordance
with such vote.
In the event that no written order designating a successor custodian
or certified copy of a vote of the Board shall have been delivered
to the Custodian on or before the date when such termination shall
become effective, then the Custodian shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the 1940
Act, (delete "doing business ... Massachusetts" unless SSBT is the
Custodian) doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$100,000,000, all securities, funds and other properties held by the
Custodian and all instruments held by the Custodian relative thereto
and all other property held by it under this Contract for each Fund
and to transfer to separate accounts of such successor custodian
all of each Fund's securities held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the
Custodian under this Contract.
In the event that securities, funds and other properties remain in
the possession of the Custodian after the date of termination hereof
owing to failure of the Trust to procure the certified copy of the
vote referred to or of the Board to appoint a successor custodian,
the Custodian shall be entitled to fair compensation for its
services during such period as the Custodian retains possession of
such securities, funds and other properties and the provisions of
this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian and
the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of
this Contract. Any such interpretive or additional provisions shall
be in a writing signed by both parties and shall be annexed hereto,
provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any
provision of the Declaration of Trust/Articles of Incorporation. No
interpretive or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this
Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth of
Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or
to the Custodian at address for SSBT only: 225 Franklin Street,
Boston, Massachusetts, 02110, or to such other address as the Trust
or the Custodian may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust of
those Trusts which are business trusts and agrees that the
obligations and liabilities assumed by the Trust and any Fund
pursuant to this Contract, including, without limitation, any
obligation or liability to indemnify the Custodian pursuant to
Section 8 hereof, shall be limited in any case to the relevant Fund
and its assets and that the Custodian shall not seek satisfaction of
any such obligation from the shareholders of the relevant Fund, from
any other Fund or its shareholders or from the Trustees, Officers,
employees or agents of the Trust, or any of them. In addition, in
connection with the discharge and satisfaction of any claim made by
the Custodian against the Trust, for whatever reasons, involving
more than one Fund, the Trust shall have the exclusive right to
determine the appropriate allocations of liability for any such
claim between or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed effective as of the 1st day of
December, 1993.
ATTEST: INVESTMENT COMPANIES (Except those
listed below)
/s/John G. McGonigle_________ By /s/John G. Donahue_____________
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie______________ By /s/ F. J. Sidoti, Jr.
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANIY
/s/ Jeannette Fisher-Garber______ By /s/ James J. Dolan
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
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<S> <C> <C>
CONTRACT FEE
DATE INVESTMENT COMPANY SCHEDULE
12/1/93 111 Corcoran Funds 2
12/1/93 111 Corcoran Bond Fund 2
12/1/93 111 Corcoran North Carolina Municipal Securities Fund 2
12/1/93 American Leaders Fund, Inc. 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Fortress Shares 1
12/1/93 Automated Cash Management Trust 1
12/1/93 Automated Government Money Trust 1
12/1/93 California Municipal Cash Trust 1
Has a separate
contract with
SSB - included for
fee information
purposes only Cambridge Series Trust 1
Cambridge Capital Growth Portfolio 1
Class A 1
Class B 1
Cambridge Government Income Portfolio 1
Class A 1
Class B 1
Cambridge Growth Portfolio 1
Class A 1
Class B 1
Cambridge Income and Growth Portfolio 1
Class A 1
Class B 1
Cambridge Municipal Income Portfolio 1
Class A 1
Class B 1
12/1/93 Cash Trust Series, Inc. 1
12/1/93 Government Cash Series 1
12/1/93 Municipal Cash Series 1
12/1/93 Prime Cash Series 1
12/1/93 Treasury Cash Series 1
12/1/93 Cash Trust Series II 1
12/1/93 Municipal Cash Series II 1
12/1/93 Treasury Cash Series II 1
12/1/93 DG Investor Series 2
12/1/93 DG Equity Fund 2
12/1/93 DG Government Income Fund 2
12/1/93 DG Limited Term Government Income Fund 2
12/1/93 DG Municipal Income Fund 2
12/1/93 DG U.S. Government Money Market Fund 2
12/1/93 Edward D. Jones & Co. Daily Passport Cash Trust 1
12/1/93 Federated ARMs Fund 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Bond Fund 1
12/1/93 Federated Exchange Fund, Ltd. 1
12/1/93 Federated GNMA Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Government Trust 1
12/1/93 Automated Government Cash Reserves 1
12/1/93 Automated Treasury Cash Reserves 1
12/1/93 U.S. Treasury Cash Reserves 1
12/1/93 Federated Growth Trust 1
12/1/93 Federated High Yield Trust 1
12/1/93 Federated Income Securities Trust 1
12/1/93 Federated Short-Term Income Fund 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Income Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Index Trust 1
12/1/93 Max-Cap Fund 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Mid-Cap Fund 1
12/1/93 Mini-Cap Fund 1
12/1/93 Federated Intermediate Government Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Investment Funds 1
12/1/93 Growth Portfolio 1
12/1/93 High Quality Bond Portfolio 1
12/1/93 Pennsylvania Intermediate Municipal Income Portfolio 1
12/1/93 Value Equity Portfolio 1
12/1/93 Federated Master Trust 1
12/1/93 Federated Municipal Trust 1
12/1/93 Alabama Municipal Cash Trust 1
12/1/93 Connecticut Municipal Cash Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Massachusetts Municipal Cash Trust 1
12/1/93 BayFund Shares 1
12/1/93 Institutional Service Shares 1
12/1/93 Minnesota Municipal Cash Trust 1
12/1/93 Cash Series Shares 1
12/1/93 Institutional Shares 1
12/1/93 New Jersey Municipal Cash Trust 1
12/1/93 Cash Series Shares 1
12/1/93 Institutional Shares 1
12/1/93 Institutional Service Shares 1
12/1/93 Ohio Municipal Cash Trust 1
12/1/93 Cash II Shares 1
12/1/93 Institutional Shares 1
12/1/93 Pennsylvania Municipal Cash Trust 1
12/1/93 Cash Series Shares 1
12/1/93 Institutional Service Shares 1
12/1/93 Virginia Municipal Cash Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Short-Intermediate Government Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Short-Intermediate Municipal Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Federated Short-Term U.S. Government Trust 1
12/1/93 Federated Stock Trust 1
12/1/93 Federated Tax-Free Trust 1
12/1/93 Financial Reserves Fund 1
Has a separate
contract with
SSB - included for
fee information
purposes only First Union Funds
*Not effective or currently not being offered 1
First Union Balanced Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares 1
First Union Fixed Income Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares 1
First Union Florida Municipal Bond Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
First Union Georgia Municipal Bond Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
First Union Insured Tax-Free Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
First Union Managed Bond Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
First Union Maryland Municipal Bond Portfolio* 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares 1
First Union Money Market Portfolio 1
Class B Investment Shares 1
Class C Investment Shares* 1
Trust Shares 1
First Union North Carolina Municipal Bond Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
First Union South Carolina Municipal Bond Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
First Union Tax-Free Money Market Portfolio 1
Class B Investment Shares 1
Class C Investment Shares* 1
Trust Shares 1
First Union Tennessee Municipal Bond Portfolio* 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares 1
First Union Treasury Money Market Portfolio 1
Class B Investment Shares 1
Class C Investment Shares* 1
Trust Shares 1
First Union U.S. Government Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares 1
First Union Utility Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
First Union Value Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares 1
First Union Virginia Municipal Bond Portfolio 1
Class B Investment Shares 1
Class C Investment Shares 1
Trust Shares* 1
12/1/93 Fixed Income Securities, Inc. 1
12/1/93 Limited Term Fund 1
12/1/93 Fortress Shares 1
12/1/93 Investment Shares 1
12/1/93 Limited Term Municipal Fund 1
12/1/93 Fortress Shares 1
12/1/93 Investment Shares 1
12/1/93 Multi-State Municipal Income Fund 1
12/1/93 Limited Maturity Government Fund 1
12/1/93 Fortress Adjustable Rate U.S. Government Fund, Inc. 1
12/1/93 Fortress Municipal Income Fund, Inc. 1
12/1/93 Fortress Utility Fund, Inc. 1
12/1/93 FT Series, Inc. 1
12/1/93 International Equity Fund 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 International Income Fund 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Fund for U.S. Government Securities, Inc. 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Government Income Securities, Inc. 1
Has a separate
contract with
SSB - included for
fee information
purposes only Independence One Mutual Funds
*Fund not effective or currently on hold. 1
Independence One Equity Fund* 1
Investment Shares 1
Trust Shares 1
Independence One Michigan Municipal Cash Fund 1
Investment Shares 1
Trust Shares* 1
Independence One Prime Money Market Fund 1
Investment Shares 1
Trust Shares* 1
Independence One U.S. Government Securities Fund 1
Investment Shares 1
Trust Shares 1
Independence One U.S. Treasury Money Market
Fund 1
1/11/94 Insight Institutional Series, Inc.
1/11/94 Insight Adjustable Rate Mortgage Fund 1
1/11/94 Insight Limited Term Income Fund 1
1/11/94 Insight Limited Term Municipal Fund 1
1/11/94 Insight U.S. Government Fund 1
12/1/93 Intermediate Municipal Trust 1
12/1/93 Intermediate Municipal Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Ohio Intermediate Municipal Trust 1
12/1/93 Pennsylvania Intermediate Municipal Trust 1
12/1/93 Investment Series Fund, Inc. 1
12/1/93 Capital Growth Fund 1
12/1/93 Investment Shares 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Fortress Bond Fund 1
12/1/93 Investment Series Trust 1
12/1/93 High Quality Stock Fund 1
12/1/93 Municipal Securities Income Fund 1
12/1/93 U.S. Government Bond Fund 1
12/1/93 Liberty Equity Income Fund, Inc. 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Fortress Shares 1
12/1/93 Liberty High Income Bond Fund, Inc. 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Liberty Municipal Securities Fund, Inc. 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Liberty Term Trust, Inc. - 1999 1
12/1/93 Liberty U.S. Government Money Market Trust 1
12/1/93 Liberty Utility Fund, Inc. 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Liquid Cash Trust 1
12/1/93 Money Market Management, Inc. 1
12/1/93 Money Market Trust 1
12/1/93 Money Market Obligations Trust 1
12/1/93 Government Obligations Fund 1
12/1/93 Prime Obligations Fund 1
12/1/93 Tax-Free Obligations Fund 1
12/1/93 Treasury Obligations Fund 1
12/1/93 Municipal Securities Income Trust 1
12/1/93 California Municipal Income Fund 1
12/1/93 Fortress Shares 1
12/1/93 Florida Municipal Income Fund 1
12/1/93 Maryland Municipal Income Fund 1
12/1/93 Michigan Municipal Income Fund 1
12/1/93 New Jersey Municipal Income Fund 1
12/1/93 New York Municipal Income Fund 1
12/1/93 Fortress Shares 1
12/1/93 Ohio Municipal Income Fund 1
12/1/93 Fortress Shares 1
12/1/93 Trust Shares 1
12/1/93 Pennsylvania Municipal Income Fund 1
12/1/93 Investment Shares 1
12/1/93 Trust Shares 1
12/1/93 Income shares 1
12/1/93 Texas Municipal Income Fund 1
12/1/93 Virginia Municipal Income Fund 1
12/1/93 New York Municipal Cash Trust 1
12/1/93 Cash II Shares 1
12/1/93 Institutional Service Shares 1
12/1/93 Portage Funds 2
12/1/93 Portage Government Money Market Fund 2
12/1/93 Investment Shares 2
12/1/93 Trust Shares 2
12/1/93 SouthTrust Vulcan Funds 2
12/1/93 Bond Fund 2
12/1/93 Stock Fund 2
12/1/93 Treasury Obligations Money Market Fund 2
12/1/93 Stock and Bond Fund, Inc. 1
12/1/93 Class A Shares 1
12/1/93 Class C Shares 1
12/1/93 Tax-Free Instruments Trust 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 The Boulevard Funds 2
12/1/93 Boulevard Blue Chip Growth Fund 2
12/1/93 Boulevard Managed Income Fund 2
12/1/93 Boulevard Managed Municipal Fund 2
12/1/93 Boulevard Strategic Balanced Fund 2
12/1/93 The Planters Funds 2
12/1/93 Tennessee Tax-Free Bond Fund 2
Has a separate
contract with
SSB - included for
fee information
purposes only Tower Mutual Funds 1
Tower U.S. Government Income Fund 1
Tower Capital Appreciation Fund 1
Tower Cash Reserve Fund 1
Tower Louisiana Municipal Income Fund 1
Tower Total Return Bond Fund 1
Tower U.S. Treasury Money Market Fund 1
12/1/93 Trademark Funds 2
12/1/93 Trademark Equity Fund 2
12/1/93 Trademark Government Income Fund 2
12/1/93 Trademark Kentucky Municipal Bond Fund 2
12/1/93 Trademark Short-Intermediate Government Fund 2
12/1/93 Trust for Financial Institutions 1
12/1/93 Government Qualifying Liquidity Fund 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Short-Term Government Qualifying Liquidity Fund 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Government Money Market Fund 1
12/1/93 Institutional Service Shares 1
12/1/93 Institutional Shares 1
12/1/93 Trust for Government Cash Reserves 1
12/1/93 Trust for Short-Term U.S. Government Securities 1
12/1/93 Trust for U.S. Treasury Obligations 1
Has a separate
contract with
SSB - included for
fee information
purposes only Vision Fiduciary Funds, Inc. 1
Vision Fiduciary Money Market Fund 1
Has a separate
contract with
SSB - included for
fee information
purposes only Vision Group of Funds, Inc. 1
Vision Growth and Income Fund 1
Vision Money Market Fund 1
Vision New York Tax-Free Fund 1
Vision New York Tax-Free Money Market Fund 1
Vision Treasury Money Market Fund 1
Vision U.S. Government Securities Fund 1
Schedule 1
STATE STREET BANK
CUSTODY /
PORTFOLIO RECORD KEEPING
FEE SCHEDULE
Federated Investors
- Federated Funds -
I. Custody Services
Maintain Custody of fund assets. Settle portfolio purchases and sales.
Report buy and sell fails. Determine and collect portfolio income.
Make cash disbursements and report cash transactions. Monitor
corporate actions.
ANNUAL FEES
ASSET
First $500 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $15,000
Maximum fee per year $90,000
Wire Fees $2.70 per wire
Settlements:
. Each DTC Commercial Paper $9.00
. Each DTC Transaction $9.00
. Each Federal Reserve Book Entry Transaction (Repo) $4.50
. Each Repo with Banks Other than State Street Bank $7.50
. Each Physical Transaction (NY/Boston, Private Placement) $21.75
. Each Option Written/Exercised/Expired $18.75
. Each Stock Loan Transaction $12.00
. Each Book Entry Muni (Sub-custody) Transaction $15.00
. Index Fund/ETD Cost + 15%
II. Portfolio Record keeping / Fund Accounting Services
Maintain investment ledgers, provide selected portfolio transactions,
position and income reports. Maintain general ledger and capital
stock accounts. Prepare daily trial balance. Provide selected
general ledger reports. Calculate net asset value daily.
Securities yield or market value quotations will be provided to
State Street by the fund or via State Street Bank automated pricing
services.
ANNUAL FEES
ASSET
First $250 Million 2.0 Basis Points
Next $250 Million 1.5 Basis Points
Next $250 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $39,000
Maximum fee per year $120,000
Additional class of shares per year $12,000
III. Multicurrency Horizon Remote Service
July 1, 1993 - July 1, 1995 No Charge
Post July 1, 1995 $5,000 per portfolio per year
$ 500 per portfolio per year
for each additional
class
IV. Out-Of-Pocket Expenses
Pricing Fees
Telephone
Postage & Insurance
Armored carrier costs
Legal fees
Supplies related to fund records
Processing validation certificates
Forms, envelopes, Xerox copies, supplies, etc.
Travel and setup expenses related to Horizon Remote
Lease and multiplex switching lines related to Horizon Remote
V. Special Services
Fees for activities of a non-recurring nature such as fund consolidation
or reorganization, extraordinary security shipments and the
preparation of special reports will be subject to negotiation.
VI. Coupon Clipping
Monitoring for calls and processing for each monthly issue held
Monthly Charge $5.00
VII. Balance Credit
A balance credit equal to 75% of the average balance in the custodian
account for the month billed times the 30-day T-Bill Rate on the
last Monday of the month billed will be applied against Section I
through V above.
VIII. Term of the Contract
The parties agree that this fee schedule shall become effective June 1,
1993 and will remain in effect until it is revised as a result of
negotiations initiated by either party.
FEDERATED SERVICES CO. STATE STREET BANK & TRUST CO.
By James J. Dolan By: Frank J. Sidoti, Jr.
President Vice President
January 24, 1994 December 15, 1993
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