Liberty
Municipal Securities
Fund, Inc.
Select Shares
PROSPECTUS
The Select 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.
This prospectus contains the information you should read and know before you
invest in Select Shares of the Fund. Keep this prospectus for future reference.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED BY 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.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class C Shares and Select Shares dated January 15, 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 January 15, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Characteristics 2
When-Issued and Delayed
Delivery Transactions 3
Temporary Investments 3
Portfolio Turnover 3
Municipal Bonds 3
Investment Risks 5
Investment Limitations 5
NET ASSET VALUE 5
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INVESTING IN SELECT SHARES 6
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Share Purchases 6
Through a Financial Institution 6
Directly From the Distributor 6
Minimum Investment Required 6
What Shares Cost 7
Systematic Investment Program 7
Certificates and Confirmations 7
Dividends and Distributions 7
EXCHANGE PRIVILEGE 8
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Requirements for Exchange 8
Tax Consequences 8
Making an Exchange 8
Telephone Instructions 8
REDEEMING SELECT SHARES 9
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Through a Financial Institution 9
Directly From the Fund 9
By Telephone 9
By Mail 9
Signatures 10
Systematic Withdrawal Program 10
Accounts with Low Balances 10
FUND INFORMATION 11
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Management of the Fund 11
Board of Directors 11
Officers and Directors 11
Investment Adviser 14
Advisory Fees 14
Adviser's Background 14
Distribution of Select Shares 15
Distribution Plan 15
Other Payments to Financial
Institutions 15
Administration of the Fund 16
Administrative Services 16
Shareholder Services Plan 16
Custodian 16
Transfer Agent and Dividend
Disbursing Agent 16
Legal Counsel 16
Independent Auditors 16
Expenses of the Fund and Select Shares 16
SHAREHOLDER INFORMATION 17
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Voting Rights 17
TAX INFORMATION 17
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Federal Income Tax 17
Pennsylvania Corporate and
Personal Property Taxes 18
PERFORMANCE INFORMATION 19
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OTHER CLASSES OF SHARES 19
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Financial Highlights--Class A Shares 20
Financial Highlights--Class C Shares 22
APPENDIX 23
SUMMARY OF FUND EXPENSES
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<TABLE>
<CAPTION>
SELECT 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
Deferred Sales Load (as a percentage of original purchase price or redemption proceeds
as applicable).......................................................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None
Exchange Fee.............................................................................................. None
ANNUAL SELECT SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee............................................................................................ 0.60%
12b-1 Fee................................................................................................. 0.75%
Total Other Expenses...................................................................................... 0.46%
Shareholder Servicing Fee.................................................................. 0.25%
Total Select Shares Operating Expenses.............................................................. 1.81%
</TABLE>
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* Total Select Shares Operating Expenses are estimated based on the average
expenses expected to be incurred during the period ending March 31, 1994.
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 SELECT SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN SELECT 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
<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.................................................. $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,
1994.
The information set forth in the foregoing table and example relates only to
Select Shares of the Fund. The Fund also offers two other classes of shares
called Class A and Class C Shares. Class A, Class C and Select Shares are
subject to certain of the same expenses; however, Class A Shares are subject to
a maximum sales load of 4.50% and may be subject to a redemption fee, but are
not subject to a 12b-1 fee. Class C Shares are subject to a redemption fee of
1.00%. See "Other Classes of Shares."
GENERAL INFORMATION
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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 C Shares, and Select Shares. This prospectus
relates only to the Select Shares ("Shares") of the Fund.
Shares of the Fund are designed primarily for customers of financial
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.
Shares are sold at net asset value. Shares will be redeemed at net asset value
without the imposition of a redemption fee.
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."
INVESTMENT INFORMATION
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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. A description of the ratings
categories is contained in the Appendix to the prospectus.
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 comparable to the Fund's regular investments. 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 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.
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
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The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of Select Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of Select
Shares in the liabilities of the Fund and those attributable to Select Shares,
and dividing the remainder by the number of Select Shares outstanding. The net
asset value for Select Shares may differ from that of Class A 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 SELECT SHARES
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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.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor 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.--Select Shares; and
mail both to Liberty Municipal Securities Fund, Inc., P.O. Box 8604,
Boston, MA 02266-8604.
Orders by mail are considered received after payment by check is converted by
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: State Street Bank and
Trust Company, Boston, Massachusetts 02105; Attention: Mutual Fund Servicing
Division; For Credit to: Liberty Municipal Securities Fund, Inc.--Select 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 determned 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.
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
on the application or by contacting the Fund.
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 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
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In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Select shareholders may exchange all or some of their
Shares for Select Shares of Liberty High Income Bond Fund, Fund for U.S.
Government Securities, and Limited Maturity Government Fund at net asset value.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $1,500. 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 Select 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 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, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges 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 Boston Financial Data Services, Inc., Attention: Federated Division, Two
Heritage Drive, North Quincy, Massachusetts, 02171.
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 transfer agent. If the instructions are given by a broker, a
telephone authorization form completed by the broker must be on file with the
transfer agent. 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 will be binding upon the
shareholder. 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 new Fund will not receive
that Fund's dividend which is payable to shareholders of record on that date.
This privilege may be modified or terminated at any
time. Telephone 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.
REDEEMING SELECT SHARES
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The Fund redeems Shares at their net asset value next determined after the
transfer agent 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 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 instructions may be
recorded. If reasonable procedures are not followed by the Fund, it may liable
for losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
State Street Bank. 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 firm 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.
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
Administrative Services, Inc., 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\* President and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Director Trustee, Federated Advisers, Federated Management, and
Tower Federated Research; Director, AEtna Life 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, Vice 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.
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee,
Federated Investors and Director Federated Advisers, Federated Management, and Federated
Tower Research; President and Director, Federated Administrative
Pittsburgh, PA 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,
President and Director of the Fund.
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 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
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 Vice President, Treasurer, and Trustee, Federated In-
Federated Investors and 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, Inc.; 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 and 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, 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 and Director 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 some 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 Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities 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 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 of
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 SELECT 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 PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Plan"), Shares will pay an amount computed at an annual rate of .75% of
the average daily net asset value of Shares to finance any activity which is
principally intended to result in the sale of Shares.
The distributor may select financial institutions (such as a broker/dealer or
bank) to provide sales support services as agents for their clients or customers
who beneficially own Shares. Financial institutions will receive fees from the
distributor 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 distributor.
The Fund's 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.
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.
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.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., which is a
subsidiary of Federated Investors, provides the Fund with the administrative
personnel and services necessary to operate the Fund. Such services include
shareholder servicing and certain legal and accounting services. Federated
Administrative Services, Inc. provides these at approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to Class A, Class C and Select Shares. Under
the Services Plan, financial institutions will enter into shareholder service
agreements with the Fund to provide administrative support services to their
customers who from time to time may be owners of record or beneficial owners of
Select Shares. In return for providing these support services, a financial
institution may receive payments from the Fund at a rate not exceeding .25% of
the average daily net assets of the Select Shares beneficially owned by the
financial institution's customers for whom it is holder of record or with whom
it has a servicing relationship. These administrative services may include, but
are not limited to, the following functions: providing office space, equipment,
telephone facilities, and various personnel, including clerical, supervisory,
and computer, 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 regarding the Fund; assisting clients in changing dividend options,
account designations, and addresses; and providing such other services as the
Fund reasonably requests.
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 SELECT 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
SEC 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 at 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.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Fund's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
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 Select Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in 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 Shares is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by 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 Shares is calculated similarly to the
yield but is adjusted to reflect the taxable yield that 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 Shares
and therefore, may not correlate to the dividends or other distributions paid to
shareholders.
Total return, yield and tax-equivalent yield will be calculated separately for
Class A, Class C and Select Shares. Because Select and Class C Shares are
subject to a Rule 12b-1 fee and shareholder services fee, the total return,
yield and tax-equivalent yield for Class A Shares, for the same period, will
exceed that of Select and Class C Shares.
From time to time, the Fund may advertise the performance of Shares using
certain reporting services and/or compare the performance of Shares to certain
indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund does not presently offer Class B Shares. Class A Shares are sold
primarily to customers of financial institutions subject to a front-end sales
charge of up to 4.50% and certain redemption charges. Class A Shares are subject
to a minimum initial investment of $500.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales charge. 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 .75 of 1% in addition to a shareholder services fee of .25
of 1%, of the Class C Shares' average daily net assets. Class C Shares may be
subject to certain redemption charges. 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
Select 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)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994* 1993 1992 1991 1990 1989 1988 1987 1986
NET ASSET VALUE, BEGINNING OF
PERIOD $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91
- -----------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -----------------------------
Net investment income 0.33 0.66 0.67 0.71 0.72 0.72 0.73 0.75 0.80
- -----------------------------
Net realized and unrealized
gain/(loss) on investments 0.34 0.64 0.37 0.14 0.21 0.23 (0.77) 0.29 1.60
- ----------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.67 1.30 1.04 0.85 0.93 0.95 (0.04) 1.04 2.40
- -----------------------------
LESS DISTRIBUTIONS
- -----------------------------
Dividends to shareholders
from net investment income (0.33) (0.66) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80)
- ----------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 11.96 $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51
- ----------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN*** 5.83%(a) 12.13% 10.05% 8.42% 9.20% 9.76% (0.17%) 10.28% 28.25%
- -----------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------
Expenses 0.83%(b) 0.80% 0.84% 0.89% 0.90% 0.95% 0.95% 0.95% 0.93%
- -----------------------------
Net investment income 5.57%(b) 5.81% 6.17% 6.77% 6.80% 7.07% 7.28% 7.07% 8.39%
- -----------------------------
Expense adjustment (c) -- -- -- -- -- -- -- -- 0.23%
- -----------------------------
SUPPLEMENTAL DATA
- -----------------------------
Net assets, end of period
(000 omitted) $766,565 $706,126 $590,118 $511,611 $474,797 $440,445 $388,916 $424,655 $248,710
- -----------------------------
Portfolio turnover rate 13% 13% 8% 45% 25% 58% 55% 13% 2%
- -----------------------------
<CAPTION>
<S> <C>
1985**
NET ASSET VALUE, BEGINNING OF
PERIOD $ 8.51
- -----------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -----------------------------
Net investment income 0.40
- -----------------------------
Net realized and unrealized
gain/(loss) on investments 0.40
- ----------------------------- ---------
Total from investment
operations 0.80
- -----------------------------
LESS DISTRIBUTIONS
- -----------------------------
Dividends to shareholders
from net investment income (0.40)
- ----------------------------- ---------
NET ASSET VALUE, END OF
PERIOD $ 8.91
- ----------------------------- ---------
TOTAL RETURN*** 9.49%(a)
- -----------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------
Expenses 1.04%(b)
- -----------------------------
Net investment income 9.09%(b)
- -----------------------------
Expense adjustment (c) 0.30%(b)
- -----------------------------
SUPPLEMENTAL DATA
- -----------------------------
Net assets, end of period
(000 omitted) $105,664
- -----------------------------
Portfolio turnover rate 1%
- -----------------------------
</TABLE>
* Six months ended September 30, 1993 (unaudited).
**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.
(a)Cumulative total return based on net asset value.
(b)Computed on an annualized basis.
(c)Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 4).
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1993, which can be obtained free of charge.
(See Notes to Financial Statements)
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 April 29, 1993 on the Fund's financial
statements for the year ended March 31, 1993 is included in the Annual Report
dated March 31, 1993, 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>
YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989 1988 1987 1986 1985*
NET ASSET VALUE, BEGINNING
OF PERIOD $ 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 0.67 0.71 0.72 0.72 0.73 0.75 0.80 0.40
- ----------------------------
Net realized and unrealized
gain/ (loss) on investments 0.64 0.37 0.14 0.21 0.23 (0.77) 0.29 1.60 0.40
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 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) (0.67) (0.71) (0.72) (0.72) (0.73) (0.75) (0.80) (0.40)
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 11.62 $ 10.98 $ 10.61 $ 10.47 $ 10.26 $ 10.03 $ 10.80 $ 10.51 $ 8.91
- ---------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 12.13% 10.05% 8.42% 9.20% 9.76% (0.17%) 10.28% 28.25% 9.49%(a)
- ----------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------
Expenses 0.80% 0.84% 0.89% 0.90% 0.95% 0.95% 0.95% 0.93% 1.04%(b)
- ----------------------------
Net investment income 5.81% 6.17% 6.77% 6.80% 7.07% 7.28% 7.07% 8.39% 9.09%(b)
- ----------------------------
Expense adjustment (c) -- -- -- -- -- -- -- 0.23% 0.30%(b)
- ----------------------------
SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period
(000 omitted) $706,126 $590,118 $511,611 $474,797 $440,445 $388,916 $424,655 $248,710 $105,664
- ----------------------------
Portfolio turnover rate 13% 8% 45% 25% 58% 55% 13% 2% 1%
- ----------------------------
<CAPTION>
SEPTEMBER 30,
<S> <C> <C>
1984 1983
NET ASSET VALUE, BEGINNING
OF PERIOD $ 9.20 $ 8.53
- ----------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ----------------------------
Net investment income 0.79 0.75
- ----------------------------
Net realized and unrealized
gain/ (loss) on investments (0.69) 0.67
- ---------------------------- --------- ---------
Total from investment
operations 0.10 1.42
- ----------------------------
LESS DISTRIBUTIONS
- ----------------------------
Dividends to shareholders
from net investment income (0.79) (0.75)
- ---------------------------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 8.51 $ 9.20
- ---------------------------- --------- ---------
TOTAL RETURN** 1.23% 16.96%
- ----------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------
Expenses 1.14% 1.46%
- ----------------------------
Net investment income 9.00% 8.14%
- ----------------------------
Expense adjustment (c) 0.28% --
- ----------------------------
SUPPLEMENTAL DATA
- ----------------------------
Net assets, end of period
(000 omitted) $47,652 $47,888
- ----------------------------
Portfolio turnover rate 28% 84%
- ----------------------------
</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.
(a)Cumulative total return based on net asset value.
(b)Computed on an annualized basis.
(c)Increase/decrease in above expense/income ratios due to waivers or
reimbursements of expenses (Note 4).
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1993, which can be obtained free of charge.
(See Notes to Financial Statements)
LIBERTY MUNICIPAL SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
<S> <C>
MARCH 31, 1994*
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.70
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.23
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.26
- --------------------------------------------------------------------------------------------- -------------------
Total from investment operations 0.49
- ---------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.23)
- --------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 11.96
- --------------------------------------------------------------------------------------------- -------------------
TOTAL RETURN** 4.34%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 2.19%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 4.33%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $14,007
- ---------------------------------------------------------------------------------------------
Portfolio turnover rate 13%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from May 11, 1993 (date of initial
public investment) to September 30, 1993 (unaudited).
** Cumulative total return based on net asset value.
(a) Computed on an annualized basis.
(See Notes to Financial Statements)
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATE BOND RATINGS DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
C--The rating C is reserved for income bonds on which no interest is being paid.
D--Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
23
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are Ba are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE COMMERCIAL PAPER RATINGS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
Liberty
Municipal Securities
Fund, Inc.
Select Shares
PROSPECTUS
JANUARY 15, 1994
An Open-End, Diversified
Management Investment Company
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
8051601A-SEL (1/94)
LIBERTY MUNICIPAL SECURITIES FUND, INC.
CLASS A SHARES
CLASS C SHARES
SELECT SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectuses of Class A and Class C Shares of Liberty
Municipal Securities Fund, Inc. (the "Fund") dated May 5, 1993, and
Select Shares of the Fund dated January 15, 1994. This Statement is
not a prospectus itself. To receive a copy of the prospectus for any
class write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 15, 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 4
ADMINISTRATIVE ARRANGEMENTS 5
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 5
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 5
- ---------------------------------------------------------------
PURCHASING SHARES 6
- ---------------------------------------------------------------
Distribution of Shares 6
Distribution Plan (Class C and Select
Shares Only) 6
Conversion to Federal Funds 6
Purchases by Sales Representatives, Fund
Directors, and Employees 6
DETERMINING NET ASSET VALUE 6
- ---------------------------------------------------------------
Valuing Municipal Bonds 7
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.
Shares of the Fund are offered in three classes, known as Class A, Class C and
Select Shares (individually and collectively referred to as "Shares" as the
context may require.) The Fund does not presently offer Class B Shares. 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. Settlement dates may be a month or more after
entering into these transactions, and 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.
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 (including
bank time and demand deposits such as certificates of deposit), 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.
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 Trustees.
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, 1993, 1992, and
1991, the portfolio turnover rates were 13%, 8%, and 45%, 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.
THE FUNDS
- --------------------------------------------------------------------------------
"The Funds" and "Funds" mean the following investment companies: A. T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; 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 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; 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 Term Trust, Inc.-1999; 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; 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.
FUND OWNERSHIP
As of January 6, 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 521,458 shares (32.4%)
of the Fund as of January 6, 1994.
As of January 6, 1994, there were no shareholders of record who owned 5% or more
of the outstanding Select Shares of the Fund.
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, President and Director, Federated Administrative Services, Inc., 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 Director, Federated Administrative Services, Inc., Executive Vice President
and Director, Federated Securities Corp., 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, 1993, 1992, and 1991, prior to the creation of separate classes of Shares,
the Fund's adviser earned $4,015,243, $3,515,410, and $3,246,259, 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 ARRANGEMENTS
- --------------------------------------------------------------------------------
For the fiscal years ended March 31, 1993, 1992, and 1991, prior to the creation
of a Shareholder Services Plan, the distributor paid $196,876, $122,820, and
$62,284, respectively, to brokers and dealers for distribution and
administrative services and to administrators for administrative services. The
administrative services include, but are not limited to, providing office space,
equipment, telephone facilities, and various personnel, including clerical,
supervisory, and computer, as is necessary or beneficial to establish and
maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended March 31, 1993, 1992, and 1991, prior to the creation
of separate classes of Shares, the Fund incurred administrative service fees of
$398,773, $373,123, and $397,104, respectively. John A. Staley, IV, an officer
and Director 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. For the fiscal years ended
March 31, 1993, 1992, and 1991, Federated Administrative Services, Inc. paid
approximately $164,424, $203,888 and $167,897, respectively, for services
provided by Commercial Data Services, Inc.
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 use 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 Board of 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 C Shares," and "Investing in Select Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
For the fiscal years ended March 31, 1993, 1992, and 1991, the distributor was
paid $892,251, $342,646, and $345,688, respectively. During the same periods,
the distributor retained $105,101, $110,661, and $42,534, respectively, after
dealer concessions.
DISTRIBUTION PLAN (CLASS C AND SELECT SHARES ONLY)
With respect to the Class C and Select Shares of the Fund, the Fund has adopted
a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and
Exchange Commission under the Investment Company Act of 1940. The Plan provides
for payment of fees to Federated Securities Corp. to finance any activity which
is primarily intended to result in the sale of Class C and Select Shares. Such
activities may include the advertising and marketing of Shares; preparing,
printing, and distributing prospectuses and sales literature to prospective
shareholders, brokers, or administrators; and implementing and operating the
Plan. Pursuant to the Plan, the distributor may pay fees to brokers for
distribution and administrative services and to administrators for
administrative services as to Shares. The administrative services are provided
by a representative who has knowledge of the shareholder's particular
circumstances and goals, and include, but are not limited to: communicating
account openings; communicating account closings; entering purchase
transactions; entering redemption transactions; providing or arranging to
provide accounting support for all transactions, wiring funds and receiving
funds for Share purchases and redemptions, confirming and reconciling all
transactions; reviewing the activity in Fund accounts, and providing training
and supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for the service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Shares and prospective
shareholders.
The Board of Directors expects that the adoption of the Plan will result in the
sale of a sufficient number of Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
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. State Street Bank 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 persons.
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 redemption fee, after the Fund receives the redemption request.
Redemption procedures are explained in the respective prospectuses under
"Redeeming Class A Shares," "Redeeming Class C Shares," and "Redeeming Select
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
- --------------------------------------------------------------------------------
Prior to the creation of separate classes of Shares, the Fund's average annual
total return for the one-year, five-year, and ten-year periods ended March 31,
1993 was 7.06%, 8.90%, and 9.40%, respectively.
The average annual total return for each of the classes 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 on Class A Shares only, adjusted over the period by any additional
Shares, assuming the monthly reinvestment of all dividends and distributions.
Any applicable redemption fee 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.
YIELD
- --------------------------------------------------------------------------------
Prior to the creation of separate classes of Shares, the Fund's yield for the
thirty-day period ended March 31, 1993 was 3.97%.
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
- --------------------------------------------------------------------------------
Prior to the creation of separate classes of Shares, the Fund's tax-equivalent
yield for the thirty-day period ended March 31, 1993 was 5.51%.
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>
<S> <C> <C> <C> <C> <C>
TAXABLE YIELD EQUIVALENT FOR 1994 LIBERTY MUNICIPAL SECURITIES FUND
- ---------------------------------------------------------------------------------
FEDERAL INCOME TAX BRACKET
15.00% 28.00% 31.00% 36.00% 39.60%
- ---------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- ---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<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.
From time to time, the Fund may advertise the performance of each of the classes
of Shares compared to similar funds or portfolios using certain indices,
reporting services and financial publications. These may include the following:
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.
Investors may use such indices or reporting services in addition to any class of
Share's prospectus to obtain a more complete view of the Share's performance
before investing. Of course, when comparing the performance of any class of
Shares to any reporting service, factors such as composition of the reporting
service and prevailing market conditions should be considered in assessing the
significance of such comparisons. When comparing funds using reporting services,
or total return and yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
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, 1993 and the Report by Deloitte &
Touche dated April 30, 1993, and the Semi-Annual Report dated September 30,
1993, are incorporated herein by reference to the Annual Report of the Fund
dated March 31, 1993, and the Semi-Annual Report dated September 30, 1993, which
which are filed with the Securities and Exchange Commission respectively.
8051601B (1/94)
