1933 Act File No. 2-74191
1940 Act File No. 811-3266
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 30 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 22 X
GOVERNMENT INCOME SECURITIES, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
x on April 30, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
x filed the Notice required by that Rule on April 13, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Charles H. Morin, Esquire
Dickstein, Shapiro & Morin,
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of GOVERNMENT INCOME
SECURITIES, INC., is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page.
Item 2. Synopsis Summary of Fund Expenses.
Item 3. Condensed Financial
Information Financial Highlights; Performance
Information.
Item 4. General Description of
Registrant General Information; Fortress
Investment Program; Investment
Information; Investment Objective;
Investment Policies; Investment
Limitations.
Item 5. Management of the Fund Fund Information; Management of the
Fund; Distribution of Fund Shares;
Administration of the Fund.
Item 6. Capital Stock and Other
Securities Dividends and Distributions;
Shareholder Information; Voting
Rights; Tax Information; Federal
Income Tax; Pennsylvania Corporate
and Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered Net Asset Value; Investing in the
Fund; Share Purchases; Minimum
Investment Required; What Shares
Cost; Eliminating the Sales Charge;
Systematic Investment Program;
Exchange Privilege; Certificates and
Confirmations; Retirement Plans.
Item 8. Redemption or Repurchase Redeeming Shares; Through a
Financial Institution; Directly by
Mail; Contingent Deferred Sales
Charge; Systematic Withdrawal
Program; Accounts with Low Balances;
Exchanges for Shares of Other Funds.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page Cover Page.
Item 11. Table of Contents Table of Contents.
Item 12. General Information and
History General Information About the Fund.
Item 13. Investment Objectives and
Policies Investment Objective and Policies.
Item 14. Management of the Fund Fund Management.
Item 15. Control Persons and Principal
Holders of Securities Fund Ownership.
Item 16. Investment Advisory and Other
Services Investment Advisory Services;
Administrative Services.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered Purchasing Shares; Determining Net
Asset Value; Exchange Privilege;
Redeeming Shares.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data Total Return; Yield; Current
Distributions; Performance
Comparisons.
Item 23. Financial Statements Filed in Part A.
GOVERNMENT INCOME SECURITIES, INC.
PROSPECTUS
Government Income Securities, Inc. (the "Fund"), is an open-end, diversified
management investment company (a mutual fund) that seeks current income by
investing in a professionally managed, diversified portfolio limited primarily
to securities guaranteed as to payment of principal and interest by the U.S.
government or its agencies or instrumentalities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated April 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 30, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
FORTRESS INVESTMENT PROGRAM 3
- ------------------------------------------------------
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objective 4
Investment Policies 4
Investment Limitations 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN THE FUND 8
- ------------------------------------------------------
Share Purchases 8
Minimum Investment Required 9
What Shares Cost 9
Eliminating the Sales Load 10
Systematic Investment Program 11
Exchange Privilege 11
Certificates and Confirmations 11
Dividends and Distributions 12
Retirement Plans 12
REDEEMING SHARES 12
- ------------------------------------------------------
Through a Financial Institution 12
Directly by Mail 12
Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
Exchanges for Shares of Other Funds 15
FUND INFORMATION 15
- ------------------------------------------------------
Management of the Fund 15
Distribution of Fund Shares 16
Administration of the Fund 17
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
Pennsylvania Personal Property
Taxes 18
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 32
- ------------------------------------------------------
ADDRESSES 33
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... 1.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)............................................. 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (2)......................................................................... 0.52%
12b-1 Fee................................................................................................. None
Total Other Expenses...................................................................................... 0.45%
Shareholder Services Fee................................................................... 0.25%
Total Fund Operating Expenses (3)................................................................ 0.97%
</TABLE>
- ---------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within
four years of their purchase date. For a more complete description, see
"Contingent Deferred Sales Charge."
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.75%.
(3) The total Fund operating expenses would have been 1.20% absent the voluntary
waiver of a portion of the management fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Fund will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Investing in the Fund," "Redeeming Shares," and "Fund
Information." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period....... $30 $52 $63 $128
You would pay the following expenses on the same investment, assuming no
redemption............................................................... $20 $41 $63 $128
</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.
GOVERNMENT INCOME SECURITIES, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 32.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
1995 1994 1993 1992 1991 1990 1989 1988 1987(A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 9.00 $ 9.44 $ 9.48 $ 9.32 $ 9.19 $ 9.00 $ 9.49 $ 9.76 $ 9.99
- ------------------------------
INCOME FROM INVESTMENT
OPERATIONS
- ------------------------------
Net investment income 0.63 0.68 0.79 0.83 0.87 0.87 0.86 0.88 0.94
- ------------------------------
Net realized and unrealized
gain (loss) on investments (0.46) (0.44) (0.05) 0.17 0.15 0.24 (0.53) (0.27) (0.23)
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from investment
operations 0.17 0.24 0.74 1.00 1.02 1.11 0.33 0.61 0.71
- ------------------------------
LESS DISTRIBUTIONS
- ------------------------------
Dividends from net investment
income (0.62) (0.68) (0.78) (0.83) (0.87) (0.91) (0.82) (0.88) (0.94)
- ------------------------------
Distributions in excess of
net
investment income 0.00 0.00 0.00 (0.01)(b) (0.02)(b) (0.01)(b) 0.00 0.00 0.00
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.62) (0.68) (0.78) (0.84) (0.89) (0.92) (0.82) (0.88) (0.94)
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 8.55 $ 9.00 $ 9.44 $ 9.48 $ 9.32 $ 9.19 $ 9.00 $ 9.49 $ 9.76
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (C) 2.11% 2.63% 8.08% 11.12% 11.63% 12.81% 3.65% 6.80% 6.76%
- ------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------
Expenses 0.97% 0.97% 0.90% 0.92% 0.90% 0.93% 0.88% 0.81% 0.95%
- ------------------------------
Net investment income 7.34% 7.39% 8.27% 8.86% 9.43% 9.42% 9.33% 9.47% 9.18%
- ------------------------------
Expense waiver/
reimbursement (d) 0.23% 0.19% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
- ------------------------------
SUPPLEMENTAL DATA
- ------------------------------
Net assets, end of period
(000 omitted) $2,538,013 $3,542,078 $3,643,180 $2,261,762 $1,322,749 $1,320,710 $1,482,030 $1,846,198 $3,183,612
- ------------------------------
Portfolio turnover 143% 134% 43% 36% 37% 76% 62% 34% 208%
- ------------------------------
</TABLE>
(a) Reflects operations for the period from April 4, 1986 (date of initial
public investment) to February 28, 1987.
(b) Distributions in excess of net investment income for the years ended
February 29, 1992, February 28, 1991, and 1990 were a result of certain book
and tax timing differences. These distributions do not represent a return of
capital for federal income tax purposes.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended February 28, 1995, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was established as a Massachusetts business trust on September 23,
1981, and reorganized as a corporation under the laws of the State of Maryland
on February 4, 1986. The Fund is designed primarily for individuals and
institutions seeking current income through a professionally managed,
diversified portfolio of U.S. government securities. A minimum initial
investment of $1,500 is required, except for retirement plans, in which case the
minimum initial investment is $50.
Fund shares are sold at net asset value plus an applicable sales load and are
redeemed at net asset value. However, a contingent deferred sales charge
("CDSC") is imposed on shares, other than shares purchased through reinvestment
of dividends, which are redeemed within one to four years of their purchase
dates.
FORTRESS INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
The Fund is a member of a family of funds, collectively known as the Fortress
Investment Program (the "Fortress Funds"). The other funds in the Program are:
American Leaders Fund, Inc. --a fund providing growth of capital and
income through high-quality stocks;
California Municipal Income Fund--a fund providing current income exempt
from federal regular income tax and California personal income taxes;
Fortress Adjustable Rate U.S. Government Fund, Inc.--a fund providing
current income consistent with minimal volatility of principal by
investing in adjustable and floating rate U.S. government mortgage
securities;
Fortress Bond Fund--a fund providing current income primarily through
high-quality corporate debt;
Fortress Municipal Income Fund, Inc.--a fund providing a high level of
current income generally exempt from federal regular income tax by
investing primarily in a diversified portfolio of municipal bonds;
Fortress Utility Fund, Inc.--a fund providing high current income and
moderate capital appreciation primarily through equity and debt
securities of utility companies;
Liberty Equity Income Fund, Inc.--an equity fund investing primarily in
stocks which have a history of regular dividends;
Limited Term Fund--a fund providing a high level of current income
consistent with minimum fluctuation in principal value;
Limited Term Municipal Fund--a fund providing high level of current
income which is exempt from federal regular income tax consistent with
the preservation of capital;
Money Market Management, Inc.--a fund providing current income consistent
with stability of principal through high-quality money market
instruments;
New York Municipal Income Fund--a fund providing current income exempt
from federal regular income tax, New York personal income taxes, and New
York City income taxes;
Ohio Municipal Income Fund--a fund providing current income exempt from
federal regular income tax and Ohio personal income taxes;
Strategic Income Fund--a fund providing high current income through
investing in domestic corporate debt obligations, U.S. government
securities, and foreign government and corporate debt obligations; and
World Utility Fund--a fund providing total return by investing primarily
in securities issued by domestic and foreign companies in the utilities
industry.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus. Prospectuses for these funds are available
by writing to Federated Securities Corp.
The Fortress Investment Program provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income. The
investment objective cannot be changed without approval of 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.
INVESTMENT POLICIES
The investment policies described below may be changed by the Board of Directors
("Directors") without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in securities which are
guaranteed as to payment of principal and interest by the U.S. government or
U.S. government agencies or instrumentalities. Under normal circumstances, the
Fund will invest at least 65% of the value of its total assets in U.S.
government securities.
The U.S. government securities in which the Fund invests include:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Banks for Cooperatives; and Farm Credit
Banks; Federal Home Loan Banks, Farmers Home Administration, Farm Credit
Banks, Federal National Mortgage Association, Government National
Mortgage Association, Federal Home Loan Mortgage Corporation and Student
Loan Marketing Association.
The obligations of U.S. government agencies or instrumentalities which the Fund
may buy are backed in a variety of ways by the U.S. government or its agencies
or instrumentalities. Some of these obligations, such as Government National
Mortgage Association mortgage-backed securities and obligations of the Farmers
Home Administration, are backed by the full faith and credit of the U.S.
Treasury. Obligations of the Farmers Home Administration are also backed by the
issuer's right to borrow from the U.S. Treasury. Obligations of Federal Home
Loan Banks and the Farmers Home Administration are backed by the discretionary
authority of the U.S. government to purchase certain obligations of agencies or
instrumentalities. Obligations of Federal Home Loan Banks, Farmers Home
Administration, Farm Credit Banks, Federal National Mortgage Association, and
Federal Home Loan Mortgage Corporation are backed by the credit of the agency or
instrumentality issuing the obligations.
The Fund may purchase and sell financial futures contracts and purchase and sell
options on financial futures contracts and on its portfolio securities.
TEMPORARY INVESTMENTS. The Fund may invest temporarily in cash and cash items
during times of unusual market conditions for defensive purposes and to maintain
liquidity.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. _The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. 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.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter in transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Fund's Directors and will receive collateral in the form of cash or U.S.
government securities equal to at least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
PUT AND CALL OPTIONS. The Fund may purchase put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Fund holds, or will be purchasing, against
decreases or increases in value. The Fund may also write (sell) put and call
options on all or any portion of its portfolio to generate income for the Fund.
The Fund will write call options on securities either held in its portfolio or
for which it has the right to obtain without payment of further consideration or
for which it has segregated cash in the amount of any additional consideration.
In the case of put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise price of the
underlying securities.
The Fund may generally purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the options
since options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio of
long-term debt securities against changes in interest rates. Financial futures
contracts call for the delivery of particular debt instruments issued or
guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government at a certain time in the future. The seller of the contract
agrees to make delivery of the type of instrument called for in the contract and
the buyer agrees to take delivery of the instrument at the specified future
time.
The Fund may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value resulting from anticipated increases in market interest
rates. When the Fund writes a call option on a futures contract, it is
undertaking the obligation of selling the futures contract at a fixed price at
any time during a specified period if the option is exercised. Conversely, as
purchaser of a put option on a futures contract, the Fund is entitled (but not
obligated) to sell a futures contract at the fixed price during the life of the
option.
The Fund may also write put options and purchase call options on financial
futures contracts as a hedge against rising purchase prices of portfolio
securities resulting from anticipated decreases in market interest rates. The
Fund will use these transactions to attempt to
protect its ability to purchase portfolio securities in the future at price
levels existing at the time it enters into the transactions. When the Fund
writes a put option on a futures contract, it is undertaking to buy a particular
futures contract at a fixed price at any time during a specified period if the
option is exercised. As a purchaser of a call option on a futures contract, the
Fund is entitled (but not obligated) to purchase a futures contract at a fixed
price at any time during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the futures contracts (less any related margin deposits),
will be deposited in a segregated account with the Fund's custodian (or the
broker, if legally permitted) to collateralize the position and thereby insure
that the use of such futures contracts is unleveraged.
RISKS. When the Fund uses financial futures and options on financial
futures as hedging devices, there is a risk that the prices of the
securities subject to the futures contracts may not correlate perfectly
with the prices of the securities in the Fund's portfolio. This may cause
the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as interest rate movements. In these events,
the Fund may lose money on the futures contract or option. It is not
certain that a secondary market for positions in futures contracts or for
options will exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange will exist for any
particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on
this secondary market.
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its 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.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its net assets and pledge up
to 10% of the value of its total assets to secure such borrowings; or
invest more than 10% of its total assets in securities subject to
restrictions on resale under the Securities Act of 1933.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 10% of its net assets in securities which are not
readily marketable or which are otherwise considered illiquid, including
over-the-counter options and repurchase agreements providing for
settlement in more than seven days after notice.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and all other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange is open.
Shares of the Fund may be purchased through a financial institution (such as a
bank or an investment dealer) who has a sales agreement with the distributor,
Federated Securities Corp., or directly from Federated Securities Corp. either
by mail or wire. The Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
to place an order to purchase shares of the Fund. Orders through a financial
institution are considered received when the Fund is notified of the purchase
order or when converted into Federal Funds. It is the financial institution's
responsibility to transmit orders promptly. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the CDSC, (see "Contingent Deferred Sales Charge"). In
addition, advance payments made to financial institutions may be subject to
reclaim by the distributor for accounts transferred to financial institutions
which do not maintain investor accounts on a fully disclosed basis and do not
account for share ownership periods (see "Other Payments to Financial
Institutions").
DIRECTLY BY MAIL. To purchase shares of the Fund by mail directly from
Federated Securities Corp.:
complete and sign a new account application available from the Fund;
enclose a check made payable to Government Income Securities, Inc.; and
send both to the Fund's transfer agent, Federated Services Company, c/o
State Street Bank and Trust Company, P.O. Box 8604, Eastern, MA
02266-8604.
Purchases by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank "), into federal funds. This is generally the next business day after State
Street Bank receives the check.
DIRECTLY BY WIRE. To purchase shares of the Fund directly from Federated
Securities Corp. by Federal Reserve wire, call the Fund. All information needed
will be taken over the telephone, and the order is considered received when the
Fund receives payment by wire.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500 unless the investment is in
a retirement plan, in which case the minimum initial investment is $50.
Subsequent investments must be in amounts of at least $100, except for
retirement plans which must be in amounts of at least $50.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received, plus a sales load of 1% of the offering price (which is 1.01% of the
net amount invested). There is no sales load for purchases of $1 million or
more. In addition, no sales load is imposed for Fund shares purchased through
bank trust departments or investment advisers registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated Securities
Corp., or its affiliates. However, investors who purchase Fund shares through a
trust department or investment adviser may be charged an additional service fee
by that institution. Unaffiliated institutions through whom shares are purchased
may charge fees for services provided which may be related to the ownership of
Fund shares. This prospectus should, therefore, be read together with any
agreement between the customer and institution with regard to services provided,
the fees charged for these services, and any restrictions and limitations
imposed.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
DEALER CONCESSION. For sales of shares of the Fund, broker/dealers will
normally receive 100% of the applicable sales load. Any portion of the sales
load which is not paid to a broker/dealer will be retained by the distributor.
However, from time to time, and at the sole discretion of the distributor, all
or part of that portion may be paid to a dealer.
The sales load for shares sold other than through registered broker/dealers will
be retained by Federated Securities Corp. Federated Securities Corp. may pay
fees to banks out of the sales load in exchange for sales and/or administrative
services performed on behalf of the
bank's customers in connection with the initiation of customer accounts and
purchases of Fund shares.
ELIMINATING THE SALES LOAD
The sales load can be eliminated on the purchase of Fund shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. There is no sales load for
purchases of $1 million or more. The Fund will combine purchases made on the
same day by the investor, his spouse, and his children under age 21 when it
calculates the sales load. In addition, the sales load is eliminated for
purchases of $1 million or more made at one time by a trustee or fiduciary for a
single trust estate or a single fiduciary account.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$900,000 and purchases $100,000 more at the current public offering price, there
will be no sales load on the additional purchase. The Fund will also combine
purchases for the purpose of reducing the CDSC imposed on some share
redemptions. For example, if a shareholder already owns shares of the Fund
having a current value at the public offering price of $1 million and purchases
an additional $1 million at the current public offering price, the applicable
CDSC would be reduced to .50% for those additional shares. For more information
on the levels of CDSC and holding periods, see the section entitled "Contingent
Deferred Sales Charge."
To receive the sales load elimination and/or the CDSC reduction, Federated
Securities Corp. must be notified by the shareholder in writing or by their
financial institution at the time the purchase is made that Fund shares are
already owned or that purchases are being combined. The Fund will eliminate the
sales load and/or reduce the CDSC after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $1 million of
Fund shares over the next 13 months, the sales load may be eliminated by signing
a letter of intent to that effect. This letter of intent includes a provision
for a sales load elimination depending on the amount actually purchased within
the 13-month period and a provision for the Fund's custodian to hold 1% of the
total amount intended to be purchased in escrow (in shares of the Fund) until
such purchase is completed.
The 1% held in escrow will be applied to the shareholder's account at the end of
the 13-month period unless the amount specified in the letter of intent, which
must be $1 million or more of Fund shares, is not purchased. In this event, an
appropriate number of escrowed shares may be redeemed in order to realize the 1%
sales load.
This letter of intent also includes a provision for reductions in the CDSC and
holding period depending on the amount actually purchased within the 13-month
period. For more information on
the various levels of CDSC and holding periods, see the section entitled
"Contingent Deferred Sales Charge."
This letter may be dated as of a prior date to include any purchases made within
the past 90 days toward the dollar fulfillment of the letter of intent. Prior
trade practices will not be adjusted.
REINVESTMENT PRIVILEGE. If shares have been redeemed in the Fund, the
shareholder has a one-time right, within 120 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales load.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial institution of the reinvestment in order to receive this
elimination of the sales load. If the shareholder redeems his shares in the
Fund, there may be tax consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales load elimination,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in the Fortress Investment Program, the purchase prices of which include a
sales load. For example, if a shareholder concurrently invested $400,000 in one
of the other Fortress Funds and $600,000 in the Fund, the sales load would be
eliminated.
To receive this sales load elimination, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will eliminate the sales load
after it confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
monthly from the shareholder's checking account and invested in Fund shares at
the net asset value next determined after an order is received by Federated
Services Company, plus the 1% sales load for purchases under $1 million. A
shareholder may apply for participation in this program through Federated
Securities Corp.
EXCHANGE PRIVILEGE
Shares in other Fortress Funds may be exchanged for Fund shares at net asset
value without a sales load (if previously paid) or CDSC.
Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Fund shares at net
asset value (plus a sales load, if applicable).
Shareholders using this privilege must exchange shares having a net asset value
of at least $1,500. Further information on the exchange privilege is available
by calling Federated Securities Corp.
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 transfer agent.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Unless shareholders request cash
payments on the application or by writing to Federated Services Company,
dividends and distributions are automatically reinvested in additional shares of
the Fund on payment dates at the ex-dividend date net asset value without a
sales load.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details contact Federated Securities Corp. and consult
a tax adviser.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value, less any applicable CDSC, next
determined after Federated Services Company receives the redemption request.
Redemptions will be made on days on which the Fund computes its net asset value.
Redemption requests must be received in proper form and can be made through a
financial institution or directly from the Fund by written request.
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 Federated Services
Company 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
Federated Services Company 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 Federated Services Company 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.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming through his financial institution. If such a case should
occur, another method of redemption, such as written requests, should be
considered.
DIRECTLY BY MAIL
Shareholders may also redeem shares by sending a written request to Federated
Services Company, c/o State Street Bank and Trust Company, P.O. Box 8604,
Boston, MA 02266-8604. This written request must include the shareholder's name,
the Fund name, the Fund account number, and the share or dollar amount to be
redeemed. Shares will be redeemed at their net asset value, less any
applicable CDSC, next determined after Federated Services Company receives the
redemption request.
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 may call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. A check for the proceeds is mailed within seven days after
receipt of proper written redemption instructions from a broker or from the
shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from their Fund accounts within certain time
periods of the purchase date of those shares will be charged a CDSC by the
Fund's distributor of the lesser of the original price or the net asset value of
the shares redeemed as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT OF PURCHASE SHARES HELD CONTINGENT DEFERRED
SALES CHARGE
Up to $1,999,999 4 years or less 1%
$2,000,000 to $4,999,999 2 years or less 50%
$5,000,000 or more 1 year or less 25%
</TABLE>
In instances in which Fund shares have been acquired in exchange for shares in
other Fortress Funds, (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The CDSC will not be imposed on
shares acquired through the reinvestment of dividends or distributions of
long-term capital gains. In computing the amount of CDSC for accounts with
shares subject to a single holding period, if any, redemptions are deemed to
have occurred in the following order: (1) shares acquired through the
reinvestment of dividends and long-term capital gains;
(2) purchases of shares occurring prior to the number of years necessary to
satisfy the applicable holding period; and (3) purchases of shares occurring
within the current holding period. For accounts with shares subject to multiple
share holding periods, the redemption sequence will be determined first, with
reinvested dividends and long-term capital gains, and second, on a first-in,
first-out basis.
The CDSC will not be imposed when a redemption results from a tax-free return
under the following circumstances: (i) a total or partial distribution from a
qualified plan, other than an IRA, Keogh Plan, or a custodial account, following
retirement; (ii) a total or partial distribution from an IRA, Keogh Plan, or a
custodial account after the beneficial owner attains age 70-1/2; or (iii) from
the death or disability of the beneficial owner. The exemption from the CDSC for
qualified plans, an IRA, Keogh Plan, or a custodial account does not extend to
account transfers, rollovers, and other redemptions made for purposes of
reinvestment. CDSCs are not charged in connection with exchanges of shares for
shares in other Fortress Funds or in connection with redemptions by the Fund of
accounts with low balances. Shares of the Fund originally purchased through a
bank trust department or investment adviser registered under the Investment
Advisers Act of 1940, as amended, or retirement plans where the third party
administrator has entered into certain arrangements with Federated Securities
Corp., or its affiliates, are not subject to the CDSC to the extent that no
payments were advanced for purchases made through such entities. In addition,
shares held in the Fund by a financial institution for its own account which
were originally purchased by the financial institution directly from the Fund's
distributor without a sales load may be redeemed without a CDSC. For more
information, see "Other Payments to Financial Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Fund 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 Fund shares, and the fluctuation of the net asset
value of Fund 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 invested at least $10,000 in the Fund (at
current offering price).
A shareholder may apply for participation in this program through Federated
Securities Corp. Due to the fact that shares are sold with a sales load, it is
not advisable for shareholders to be purchasing shares while participating in
this program.
CDSCs are charged for shares redeemed through this program within four years of
their purchase dates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$1,000. This requirement does not apply,
however, if the balance falls below $1,000 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.
EXCHANGES FOR SHARES OF OTHER FUNDS
Fund shares may be exchanged for shares in other Fortress Funds at net asset
value without a CDSC or a sales load. This privilege is available to
shareholders resident in any state in which the fund shares being acquired may
be sold.
Fund shares may also be exchanged for shares in other Federated Funds which are
advised by subsidiaries or affiliates of Federated Investors at net asset value
plus any applicable sales load.
Shareholders using this privilege must exchange shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Further information on the exchange privilege and prospectuses
for other Fortress Funds and Federated Funds are available by calling the Fund.
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
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.
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 .75 of 1% of the Fund's average daily net assets. Under the
investment advisory contract, which provides for the voluntary waiver and
reimbursement of expenses by the adviser, the adviser may voluntarily waive
all or a portion of the advisory fee and reimburse some of the operating
expenses of the Fund. The adviser can terminate this voluntary waiver of
its fee or reimbursement of expenses at any time at its sole discretion.
The adviser may also undertake 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.
James D. Roberge has been the Fund's co-portfolio manager since March,
1995. Mr. Roberge joined Federated Investors in 1990 and has been a Vice
President of the Fund's investment adviser since October, 1994. Prior to
this, Mr. Roberge served as an Assistant Vice President of the Fund's
investment adviser. From 1990 until 1992, Mr. Roberge acted as an
investment analyst. Mr. Roberge is a Chartered Financial Analyst and
received his M.B.A. in Finance from Wharton Business School in 1990.
Kathleen M. Foody-Malus has been the Fund's co-portfolio manager since July
of 1993. Ms. Foody-Malus joined Federated Investors in 1983 and has been a
Vice President of the Fund's investment adviser since 1993. Ms. Foody-Malus
served as an Assistant Vice President of the investment adviser from 1990
until 1992, and from 1986 until 1989 she acted as an investment analyst.
Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the
University of Pittsburgh.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described in this
prospectus or should Congress relax current restrictions on depository
institutions, the distributor and adviser will consider appropriate changes in
the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM FEE AVERAGE AGGREGATE DAILY NET ASSETS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Fund to obtain certain personal services
for shareholders and for the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
Federated Securities Corp. will pay financial institutions, for distribution
and/or administrative services, an amount equal to 1% of the net asset value of
shares purchased by their clients or customers (except for participants in the
Liberty Family Retirement Program) on purchases up to $1,999,999, .50% of the
offering price on purchases of $2,000,000 to $4,999,999, and .25% of the
offering price on purchases of $5,000,000 or more. (This fee is in addition to
the 1% sales load on purchases of less than $1 million.) Financial institutions
may elect to waive the initial payment described above; such waiver will result
in the waiver by the Fund of the otherwise applicable CDSC.
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include participating in sales,
educational and training seminars at recreational-type facilities, providing
sales literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell and/or upon the type and
nature of sales and marketing support furnished by the financial institution.
Any payments made by the distributor may be reimbursed by the Adviser or its
affiliates.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, 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 the shares of the Fund and
dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche LLP, Pittsburgh, Pennsylvania.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings of shareholders.
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 majority vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the request of shareholders owning at least 10% of the Fund's outstanding
shares.
As of April 7, 1995, Merrill Lynch, Pierce, Fenner & Smith, owned 79,755 shares
(44.22%) of voting securities of the Fund, and, therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code, as amended, (the "Code") applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held their shares. No federal income tax is due on
any dividends earned in an IRA or qualified retirement plan until distributed,
so long as such IRA or qualified retirement plan meets the applicable
requirements of the Code.
PENNSYLVANIA PERSONAL PROPERTY TAXES
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield. In addition,
it will, on occasion, inform Fund shareholders of the Fund's current
distributions.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
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 yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load and
other similar non-recurring charges, such as the CDSC, which, if excluded, would
increase the total return and yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
GOVERNMENT INCOME SECURITIES, INC.
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------ ----------------
LONG-TERM OBLIGATIONS--99.3%
- ----------------------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP.--3.7%
------------------------------------------------------------------------------
$ 993,879 13.00%, 8/1/2011-5/1/2014 $ 1,104,438
------------------------------------------------------------------------------
1,050,515 12.50%, 6/1/2011-1/1/2014 1,158,508
------------------------------------------------------------------------------
7,260,364 12.00%, 9/1/2007-5/1/2016 7,961,256
------------------------------------------------------------------------------
7,435,186 11.50%, 4/1/2011-5/1/2019 8,080,051
------------------------------------------------------------------------------
4,729,220 11.00%, 1/1/2001-7/1/2019 5,080,808
------------------------------------------------------------------------------
28,830,752 10.50%, 7/1/2004-12/1/2020 30,777,887
------------------------------------------------------------------------------
8,154,017 9.50%, 6/1/2021-12/1/2022 8,582,021
------------------------------------------------------------------------------
20,484,718 9.00%, 8/1/2004-10/1/2006 21,217,981
------------------------------------------------------------------------------
9,840,302 8.00%, 4/1/2024 9,778,702
------------------------------------------------------------------------------ ----------------
Total 93,741,652
------------------------------------------------------------------------------ ----------------
FEDERAL HOME LOAN MORTGAGE CORP. REMIC--2.1%
------------------------------------------------------------------------------
5,000,000 9.30%, Series 141C, 9/15/2020 5,182,850
------------------------------------------------------------------------------
20,000,000 6.60%, Series 1559VH, 12/15/2021 18,215,600
------------------------------------------------------------------------------
19,085,000 6.50%, Series 1450E, 9/15/2004 18,425,422
------------------------------------------------------------------------------
14,120,000 6.50%, Series 1608K, 9/15/2022 12,286,942
------------------------------------------------------------------------------ ----------------
Total 54,110,814
------------------------------------------------------------------------------ ----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION --12.0%
------------------------------------------------------------------------------
1,673,176 13.00%, 9/1/2013-6/1/2015 1,865,575
------------------------------------------------------------------------------
2,648,756 12.50%, 12/1/2013-3/1/2015 2,942,556
------------------------------------------------------------------------------
6,617,756 12.25%, 12/1/2010-2/1/2012 7,318,708
------------------------------------------------------------------------------
4,695,300 12.00%, 3/1/2011-3/1/2016 5,183,846
------------------------------------------------------------------------------
7,050,674 11.50%, 3/1/2014-1/1/2016 7,707,381
------------------------------------------------------------------------------
46,534,486 11.00%, 9/1/2010-5/1/2023 50,449,468
------------------------------------------------------------------------------
1,939,745 10.50%, 9/1/2004 2,065,189
------------------------------------------------------------------------------
83,853,626 ***10.00%, 2/1/2004-2/1/2025 89,478,340
------------------------------------------------------------------------------
</TABLE>
GOVERNMENT INCOME SECURITIES, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------ ----------------
LONG-TERM OBLIGATIONS--CONTINUED
- ----------------------------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION --CONTINUED
------------------------------------------------------------------------------
$ 106,750,323 ***9.00%, 5/1/2004-2/1/2025 $ 110,105,923
------------------------------------------------------------------------------
26,460,000 8.00%, 2/1/2025 26,294,360
------------------------------------------------------------------------------ ----------------
Total 303,411,346
------------------------------------------------------------------------------ ----------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--5.9%
------------------------------------------------------------------------------
7,500,000 9.30%, Series 90-20H, 1/25/2019 7,772,400
------------------------------------------------------------------------------
15,730,921 9.00%, Series 90-116G, 11/25/2019 16,130,329
------------------------------------------------------------------------------
8,700,000 8.75%, Series 90-4G, 5/25/2017 8,888,007
------------------------------------------------------------------------------
13,000,000 8.70%, Series G89-1D, 11/25/2017 13,281,190
------------------------------------------------------------------------------
6,425,000 8.70%, Series 90-2E, 12/25/2018 6,545,469
------------------------------------------------------------------------------
17,000,000 7.00%, Series 93-133J, 12/25/2022 15,670,430
------------------------------------------------------------------------------
26,800,000 7.00%, Series 93-155J, 12/25/2022 24,697,272
------------------------------------------------------------------------------
17,800,000 6.75%, Series 93-163PY, 3/25/2022 16,103,126
------------------------------------------------------------------------------
14,200,000 6.50%, Series 93-187K, 8/25/2022 12,500,260
------------------------------------------------------------------------------
20,000,000 6.50%, Series 93-189PK, 3/25/2022 17,845,800
------------------------------------------------------------------------------
10,000,000 6.15%, Series 93-160AG, 12/25/2020 9,184,000
------------------------------------------------------------------------------ ----------------
Total 148,618,283
------------------------------------------------------------------------------ ----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MPT--67.4%
------------------------------------------------------------------------------
12,417,059 12.50%, 4/15/2010-9/20/2015 13,941,028
------------------------------------------------------------------------------
36,043,278 12.00%, 5/15/2011-4/20/2016 40,102,558
------------------------------------------------------------------------------
46,674,697 11.50%, 3/15/2010-3/20/2020 51,471,847
------------------------------------------------------------------------------
30,551,243 11.00%, 8/20/2009-5/15/2020 33,085,689
------------------------------------------------------------------------------
39,807,865 10.50%, 11/15/2015-9/15/2020 43,165,185
------------------------------------------------------------------------------
249,014,831 10.00%, 11/15/2009-1/15/2021 267,530,401
------------------------------------------------------------------------------
284,943,783 ***9.50%, 4/15/2016-2/15/2025 300,988,503
------------------------------------------------------------------------------
247,089,401 9.00%, 2/15/2009-1/15/2025 256,026,246
------------------------------------------------------------------------------
179,469,353 8.50%, 1/15/2017-1/15/2025 182,888,244
------------------------------------------------------------------------------
227,781,535 ***8.00%, 8/15/2022-2/15/2025 226,212,120
------------------------------------------------------------------------------
</TABLE>
GOVERNMENT INCOME SECURITIES, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- -------------- ------------------------------------------------------------------------------ ----------------
LONG-TERM OBLIGATIONS--CONTINUED
- ----------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION MPT--CONTINUED
------------------------------------------------------------------------------
$ 235,300,077 7.50%, 11/15/2022-2/15/2025 $ 227,502,233
------------------------------------------------------------------------------
73,091,336 7.00%, 8/15/2023-5/15/2024 68,453,691
------------------------------------------------------------------------------ ----------------
Total 1,711,367,745
------------------------------------------------------------------------------ ----------------
UNITED STATES TREASURY NOTES --8.2%
------------------------------------------------------------------------------
49,000,000 7.50%, 12/31/1996 49,657,090
------------------------------------------------------------------------------
67,000,000 7.25%, 11/15/1996-8/15/2004 67,332,400
------------------------------------------------------------------------------
43,100,000 6.375%, 8/15/2002 41,067,404
------------------------------------------------------------------------------
55,000,000 6.25%, 2/15/2003 51,812,750
------------------------------------------------------------------------------ ----------------
Total 209,869,644
------------------------------------------------------------------------------ ----------------
TOTAL LONG-TERM OBLIGATIONS (IDENTIFIED COST, $2,540,530,829) 2,521,119,484
------------------------------------------------------------------------------ ----------------
*REPURCHASE AGREEMENTS--18.0%
- ----------------------------------------------------------------------------------------------
88,000,000 Harris Government Securities, Inc. 6.07%, dated 2/28/1995,
due 3/1/1995 88,000,000
------------------------------------------------------------------------------
105,000 J.P. Morgan Securities, Inc., 6.13%, dated 2/28/1995, due 3/1/1995 105,000
------------------------------------------------------------------------------
65,000,000 **First Boston Corp. 6.01%, dated 2/15/1995, due 3/15/1995 65,000,000
------------------------------------------------------------------------------
30,000,000 **Goldman Sachs Corp., 6.00%, dated 2/21/1995, due 3/16/1995 30,000,000
------------------------------------------------------------------------------
40,000,000 **Merrill Lynch Government Securities, Inc., 6.00%, dated
2/16/1995, due 3/16/1995 40,000,000
------------------------------------------------------------------------------
100,000,000 **Merrill Lynch Government Securities, Inc., 6.00%, dated
2/13/1995, due 3/13/1995 100,000,000
------------------------------------------------------------------------------
83,000,000 **J.P. Morgan Securities, Inc., 6.00%, dated 2/21/1995, due 3/20/1995 83,000,000
------------------------------------------------------------------------------
50,000,000 **J.P. Morgan Securities, Inc., 6.00%, dated 2/22/1995, due 3/21/1995 50,000,000
------------------------------------------------------------------------------ ----------------
TOTAL REPURCHASE AGREEMENTS (AT AMORTIZED COST) 456,105,000
------------------------------------------------------------------------------ ----------------
TOTAL INVESTMENTS (IDENTIFIED COST, $2,996,635,829) $ 2,977,224,484+
------------------------------------------------------------------------------ ----------------
</TABLE>
GOVERNMENT INCOME SECURITIES, INC.
- --------------------------------------------------------------------------------
* The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements is through participation in joint
account with other Federated funds.
** Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement.
*** Includes securities with a market value of $314,012,310 subject to Dollar
Roll transactions.
The cost of investments for federal tax purposes amounts to $2,996,652,019.
The net unrealized depreciation on a federal tax cost basis amounts to
$19,427,535 which is comprised of $25,258,228 appreciation and $44,685,763
depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($2,538,013,274) at February 28, 1995.
The following abbreviations are used in this portfolio:
MPT--Modified Pass-Through
REMIC--Real Estate Mortgage Investment Conduit
(See Notes which are an integral part of the Financial Statements)
GOVERNMENT INCOME SECURITIES, INC.
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------
Investments in repurchase agreements $ 456,105,000
- -----------------------------------------------------------------------------
Investments in securities 2,521,119,484
- ----------------------------------------------------------------------------- ----------------
Total investments, at value (identified cost, $2,996,635,829
and tax cost, $2,996,652,019) $2,977,224,484
- -----------------------------------------------------------------------------------------------
Cash 2,874
- -----------------------------------------------------------------------------------------------
Receivable for investments sold 65,080,347
- -----------------------------------------------------------------------------------------------
Income receivable 17,215,316
- -----------------------------------------------------------------------------------------------
Receivable for shares sold 3,655,782
- ----------------------------------------------------------------------------------------------- ----------------
Total assets 3,063,178,803
- -----------------------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------------------
Payable for dollar roll transactions $ 373,761,799
- -----------------------------------------------------------------------------
Payable for investments purchased 132,899,479
- -----------------------------------------------------------------------------
Income distribution payable 10,608,346
- -----------------------------------------------------------------------------
Payable for shares redeemed 7,019,729
- -----------------------------------------------------------------------------
Accrued expenses 876,176
- ----------------------------------------------------------------------------- ----------------
Total liabilities 525,165,529
- ----------------------------------------------------------------------------------------------- ----------------
NET ASSETS for 296,990,037 shares outstanding $2,538,013,274
- ----------------------------------------------------------------------------------------------- ----------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------------------------------------
Paid-in capital $3,004,227,258
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (19,411,345)
- -----------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (451,098,697)
- -----------------------------------------------------------------------------------------------
Undistributed net investment income 4,296,058
- ----------------------------------------------------------------------------------------------- ----------------
Total Net Assets $2,538,013,274
- ----------------------------------------------------------------------------------------------- ----------------
NET ASSET VALUE Per Share ($2,538,013,274 / 296,990,037 shares outstanding) $8.55
- ----------------------------------------------------------------------------------------------- ----------------
Offering Price Per Share ( 100/99 of $8.55)* $8.64
- ----------------------------------------------------------------------------------------------- ----------------
Redemption Proceeds Per Share (99/100 of $8.55)** $8.46
- ----------------------------------------------------------------------------------------------- ----------------
</TABLE>
* See "What Shares Cost" in the prospectus.
** See "Contingent Deferred Sales Charge" in the prospectus.
(See Notes which are an integral part of the Financial Statements)
GOVERNMENT INCOME SECURITIES, INC.
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------------
Interest (net of dollar roll expense of $16,206,847) $ 244,168,572
- ------------------------------------------------------------------------------------------------
EXPENSES:
- ------------------------------------------------------------------------------------------------
Investment advisory fee $ 22,038,188
- ---------------------------------------------------------------------------------
Administrative personnel and services fee 2,232,807
- ---------------------------------------------------------------------------------
Custodian fees 370,642
- ---------------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 2,251,441
- ---------------------------------------------------------------------------------
Directors'/Trustees' fees 34,852
- ---------------------------------------------------------------------------------
Auditing fees 17,360
- ---------------------------------------------------------------------------------
Legal fees 28,064
- ---------------------------------------------------------------------------------
Portfolio accounting fees 68,505
- ---------------------------------------------------------------------------------
Shareholder services fees 7,346,063
- ---------------------------------------------------------------------------------
Share registration costs 184,090
- ---------------------------------------------------------------------------------
Printing and postage 304,908
- ---------------------------------------------------------------------------------
Insurance premiums 52,162
- ---------------------------------------------------------------------------------
Taxes 259,987
- ---------------------------------------------------------------------------------
Miscellaneous 23,979
- --------------------------------------------------------------------------------- -------------
Total expenses 35,213,048
- ---------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 6,801,420
- --------------------------------------------------------------------------------- -------------
Net expenses 28,411,628
- ------------------------------------------------------------------------------------------------ ---------------
Net investment income 215,756,944
- ------------------------------------------------------------------------------------------------ ---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (192,595,526)
- ------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 3,066,135
- ------------------------------------------------------------------------------------------------ ---------------
Net realized and unrealized gain (loss) on investments (189,529,391)
- ------------------------------------------------------------------------------------------------ ---------------
Change in net assets resulting from operations $ 26,227,553
- ------------------------------------------------------------------------------------------------ ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
GOVERNMENT INCOME SECURITIES, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
1995 1994
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------
Net investment income $ 215,756,944 $ 281,171,264
- -----------------------------------------------------------------------------
Net realized gain (loss) on investments ($192,317,284 and $83,738,305 net
loss, respectively, as computed for federal income tax purposes) (192,595,526) (107,551,473)
- -----------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments 3,066,135 (70,667,358)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in assets resulting from operations 26,227,553 102,952,433
- ----------------------------------------------------------------------------- ---------------- ----------------
NET EQUALIZATION CREDITS (DEBITS) (2,212,810) (190,224)
- ----------------------------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -----------------------------------------------------------------------------
Dividends from net investment income (209,071,289) (279,463,100)
- ----------------------------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS
- -----------------------------------------------------------------------------
Proceeds from sale of Shares 140,367,951 961,917,817
- -----------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of distributions
declared 63,719,987 79,453,646
- -----------------------------------------------------------------------------
Cost of Shares redeemed (1,023,096,149) (965,772,201)
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets from share transactions (819,008,211) 75,599,262
- ----------------------------------------------------------------------------- ---------------- ----------------
Change in net assets (1,004,064,757) (101,101,629)
- -----------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------
Beginning of period 3,542,078,031 3,643,179,660
- ----------------------------------------------------------------------------- ---------------- ----------------
End of period (including undistributed (overdistributed) net investment
income of $4,296,058 and ($176,787), respectively) $ 2,538,013,274 $ 3,542,078,031
- ----------------------------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
GOVERNMENT INCOME SECURITIES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- -----------------------------------------------------------------------------------------------
Investment income received $ 290,842,896
- -----------------------------------------------------------------------------------------------
Payment of operating expenses (29,940,833)
- -----------------------------------------------------------------------------------------------
Proceeds from sales and maturities of investments 5,130,056,440
- -----------------------------------------------------------------------------------------------
Purchase of investments (4,281,158,135)
- -----------------------------------------------------------------------------------------------
Net purchase of short-term investments (66,935,000)
- ----------------------------------------------------------------------------------------------- -----------------
Cash provided by operating activities 1,042,865,368
- ----------------------------------------------------------------------------------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -----------------------------------------------------------------------------------------------
Net proceeds from share activity (888,517,092)
- -----------------------------------------------------------------------------------------------
Decrease in payable for dollar roll transactions (4,305,221)
- -----------------------------------------------------------------------------------------------
Distributions paid (150,062,101)
- ----------------------------------------------------------------------------------------------- -----------------
Cash used for financing activities (1,042,884,414)
- ----------------------------------------------------------------------------------------------- -----------------
Decrease in cash (19,046)
- -----------------------------------------------------------------------------------------------
Cash at beginning of period 21,920
- ----------------------------------------------------------------------------------------------- -----------------
Cash at end of period $ 2,874
- ----------------------------------------------------------------------------------------------- -----------------
RECONCILIATION OF NET INCREASE IN NET ASSETS FROM OPERATIONS TO CASH PROVIDED BY OPERATING
ACTIVITIES:
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 26,227,553
- -----------------------------------------------------------------------------------------------
Net decrease in investments 895,279,716
- -----------------------------------------------------------------------------------------------
Decrease in interest receivable 8,333,837
- -----------------------------------------------------------------------------------------------
Decrease in receivable for investments sold 246,417,406
- -----------------------------------------------------------------------------------------------
Decrease in payable for investments purchased (131,863,939)
- -----------------------------------------------------------------------------------------------
Decrease in shareholder services fee payable (1,545,733)
- -----------------------------------------------------------------------------------------------
Decrease in transfer agent fee payable (464,873)
- -----------------------------------------------------------------------------------------------
Increase in accrued expenses 481,401
- ----------------------------------------------------------------------------------------------- -----------------
Cash provided by operating activities $ 1,042,865,368
- ----------------------------------------------------------------------------------------------- -----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
GOVERNMENT INCOME SECURITIES, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Government Income Securities, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of
sixty days or less at the time of purchase may be valued at amortized cost,
which approximates fair market value. U.S. government obligations are
generally valued at the mean between the over-the-counter bid and asked
prices as furnished by an independent pricing service.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank or broker to take possession, to have legally segregated in
the Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement investments. Additionally, procedures have been established by
the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's underlying collateral to ensure that the value of collateral at
least equals the principal amount of the repurchase transaction, including
accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors. Risks may
arise from the potential inability of counterparties to honor the terms of
the repurchase agreement. Accordingly, the Fund could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary. At February 28,
1995, the Fund, for federal tax purposes, had a capital loss carryforward
of ($404,873,973), which will reduce the Fund's taxable income arising from
future net realized gain on investments, if any, to the extent permitted by
the Code, and thus will reduce the amount of the distributions
to shareholders which would otherwise be necessary to relieve the Fund of
any liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire in 1996 ($68,203,141), 1997 ($35,933,841), 1998
($13,325,628), 1999 ($147,841), 2000 ($3,842,806), 2001 ($7,365,127), 2002
($83,738,305), 2003 ($192,317,284). Additionally, net capital losses of
($46,208,535) attributable to security transactions incurred after October
31, 1994 are treated as arising on March 1, 1995, the first day of the
Fund's next taxable year.
EQUALIZATION--The Fund follows the accounting practice known as
equalization, in which a portion of the proceeds from sales and costs of
redemptions of fund shares equivalent, on a per share basis, equal to the
amount of undistributed net investment income on the date of the
transaction, is credited or charged to undistributed net investment income.
As a result, undistributed net investment income per share is unaffected by
sales or redemptions of fund shares.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
OPTIONS CONTRACTS--The Fund may write option contracts. A written option
obligates the Fund to deliver a security (a call), or to receive a security
(a put), equal to the contract amount upon exercise by the holder of the
option. The value of the option contract is recorded as a liability and
unrealized gain or loss is measured by the difference between the current
value and the premium received. For the year ended February 28, 1995, the
Fund had no options outstanding.
DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA, FHLMC, in which
the Fund loans mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions are short-term financing arrangements which will not
exceed twelve months. The Fund may use the proceeds generated from the
transactions to invest in short-term investments, which may enhance the
Fund's current yield and total return.
STATEMENT OF CASH FLOWS--Information on financial transactions which have
been settled through the receipt or disbursement of cash is presented in
the Fund's Statement of Cash Flows. The cash amount shown in the Statement
of Cash Flows is the amount reported as cash in the Fund's Statement of
Assets and Liabilities and represents cash on hand in its custodian bank
account and does not include any short-term investments at February 28,
1995.
OTHER--Investment transactions are accounted for on the trade date.
RECLASSIFICATION--Income distribution and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments for expiring capital loss
carryforwards. Amounts as of February 28, 1995, have been reclassified to
reflect a decrease in paid-in capital of $10,209,710, and an increase in
accumulated net realized gain/loss. Net investment income, net realized
gains, and net assets were not affected by this change.
(3) CAPITAL STOCK
At February 28, 1995, there were 2,000,000,000 shares of $.001 par value capital
stock authorized. Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------
Shares sold 16,366,043 103,266,660
- ----------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 6,992,784 8,616,192
- ----------------------------------------------------------------------------------
Shares redeemed (119,737,988) (104,610,341)
- ---------------------------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (96,379,161) 7,272,511
- ---------------------------------------------------------------------------------- -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory
fee equal to .75 of 1% of the Fund's average daily net assets. The Adviser
may voluntarily choose to waive any portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The FAS fee is based on the level of average
aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Fund will pay
FSS up to .25 of 1% of average daily net assets of the Fund for the period.
This fee is to obtain certain personal services for shareholders and to
maintain the shareholder accounts.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated
Services Company ("FServ") serves as transfer and dividend disbursing agent
for the Fund. This fee is based on the size, type, and number of accounts
and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period plus, out-of-pocket expenses.
GENERAL--Certain of the Officers and Directors of the Fund are Officers and
Trustees or Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended
February 28, 1995, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------
PURCHASES-- $ 4,110,953,709
- ------------------------------------------------------------------------------------------------ ----------------
SALES-- $ 4,182,090,323
- ------------------------------------------------------------------------------------------------ ----------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
GOVERNMENT INCOME SECURITIES, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Government Income Securities, Inc. as of
February 28, 1995, the related statements of operations and cash flows for the
year then ended, the statement of changes in net assets for the years ended
February 28, 1995 and 1994, and the financial highlights (see page 2 of the
prospectus) for each of the years in the nine-year period ended February 28,
1995. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
February 28, 1995 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Government Income
Securities, Inc. as of February 28, 1995, the results of its operations, the
changes in its net assets, and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
April 17, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Government Income Securities, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8604
Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
GOVERNMENT INCOME
SECURITIES, INC.
PROSPECTUS
An Open-End, Diversified
Management Investment Company
April 30, 1995
[LOGO] FEDERATED SECURITIES CORP.
--------------------------
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
383733102
8040406A (4/95)
Government Income Securities, Inc.
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of Government Income Securities, Inc. (the "Fund"),
dated April 30, 1995. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write or
call the Fund.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of
FEDERATED INVESTORS
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed Delivery Transactions 1
Futures and Options Transactions 2
Lending of Portfolio Securities 4
Repurchase Agreements 4
Reverse Repurchase Agreements 4
Portfolio Turnover 4
Investment Limitations 5
Fund Management 6
Officers and Directors 6
Government Income Securities, Inc. Management 7
The Funds 10
Fund Ownership 11
Directors Compensation 11
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 12
Administrative Services 12
Transfer Agent and Dividend Disbursing Agent 12
Shareholder Services Plan 12
Brokerage Transactions 13
Purchasing Shares 13
Conversion to Federal Funds 13
Purchases by Sales Representatives,
Fund Directors, and Employees 13
Determining Net Asset Value 14
Determining Market Value of Securities14
Exchange Privilege 14
Reduced Sales Load 14
Requirements for Exchange 14
Tax Consequences 15
Making an Exchange 15
Redeeming Shares 15
Redemption in Kind 15
Tax Status 15
The Fund's Tax Status 15
Shareholders' Tax Status 16
Total Return 16
Yield 16
Current Distributions 16
Performance Comparisons 16
General Information About the Fund
The Fund was established as a Massachusetts business trust on September
23, 1981, and reorganized as a Maryland corporation on February 4, 1986.
Investment Objective and Policies
The Fund's investment objective is to provide current income. Current
income includes, in general, discount earned on U.S. Treasury bills and
agency discount notes, interest earned on all other U.S. government
securities and mortgage-related securities, and short-term capital
gains. The investment objective cannot be changed without approval of
shareholders.
Types of Investments
The Fund invests primarily in securities which are guaranteed as to
payment of principal and interest by the U.S. government or its
instrumentalities.
U.S. Government Securities
The types of U.S. government securities in which the Fund may
invest generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations
issued or guaranteed by U.S. government agencies or
instrumentalities. These securities are backed by:
- the full faith and credit of the U.S. Treasury (such as
Farmers Home Administration and Government National Mortgage
Association);
- the issuer's right to borrow from the U.S. Treasury (such as
Farmers Home Administration);
- the discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities (such as
Federal Home Loan Banks and Farmers Home Administration); or
- the credit of the agency or instrumentality issuing the
obligations (such as Federal Home Loan Banks, Farmers Home
Administration, Federal Farm Credit Banks, Federal National
Mortgage Association, and Federal Home Loan Mortgage
Corporation).
Stripped Mortgage-Related Securities
Some of the mortgage-related securities purchased by the Fund may
represent an interest solely in the principal repayments or solely
in the interest payments on mortgage-backed securities (stripped
mortgage-backed securities or "SMBSs"). Due to the possibility of
prepayments on the underlying mortgages, SMBSs may be more
interest-rate sensitive than other securities purchased by the
Fund. If prevailing interest rates fall below the level at which
SMBSs were issued, there may be substantial prepayments on the
underlying mortgages, leading to the relatively early prepayments
of principal-only SMBSs and a reduction in the amount of payments
made to holders of interest-only SMBSs. It is possible that the
Fund might not recover its original investment on interest-only
SMBSs if there are substantial prepayments on the underlying
mortgages. Therefore, interest-only SMBSs generally increase in
value as interest rates rise and decrease in value as interest
rates fall, counter to changes in value experienced by most fixed
income securities. The Fund's adviser intends to use this
characteristic of interest-only SMBSs to reduce the effects of
interest rate changes on the value of the Fund's portfolio, while
continuing to pursue current income.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be
an advantageous price or yield for the Fund. No
fees or other 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 on the Fund's
records at the trade date. These assets are marked to
market daily and are maintained until the transaction
has been settled. The Fund does not intend
to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of
more than 20% of the total value of its assets.
Futures and Options Transactions
The Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts and options on financial
futures contracts. Additionally, the Fund may buy and sell call and put
options on U.S. government securities.
Financial Futures Contracts
A futures contract is a firm commitment by two parties, the seller
who agrees to make delivery of the specific type of security
called for in the contract ("going short") and the buyer who
agrees to take delivery of the security ("going long") at a
certain time in the future. Financial futures contracts call for
the delivery of particular debt securities issued or guaranteed by
the U.S. Treasury or by specified agencies or instrumentalities of
the U.S. government.
In the fixed income securities market, price moves inversely to
interest rates. A rise in rates means a drop in price. Conversely,
a drop in rates means a rise in price. In order to hedge its
holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect
itself against the possibility that the prices of its fixed income
securities may decline during the Fund's anticipated holding
period. The Fund would "go long" (agree to purchase securities in
the future at a predetermined price) to hedge against a decline in
market interest rates.
Purchasing Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts for U.S. government securities. Unlike entering directly
into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but does
not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
The Fund would purchase put options on futures to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the
hedged portfolio securities decrease in value during the term of
an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical
option. If the hedge is successful, the proceeds received by the
Fund upon the sale of the second option will be large enough to
offset both the premium paid by the Fund for the original option
plus the realized decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it
would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of
the option) and exercise the option. The Fund would then deliver
the futures contract in return for payment of the strike price. If
the Fund neither closes out nor exercises an option, the option
will expire on the date provided in the option contract, and the
premium paid for the contract will be lost.
Writing Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, the Fund may
write listed call options on futures contracts for U.S. government
securities to hedge its portfolio against an increase in market
interest rates. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the option is
exercised. As market interest rates rise, causing the prices of
futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing
the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below
the strike price, the buyer of the option has no reason to
exercise the call, so that the Fund keeps the premium received for
the option. This premium can offset the drop in value of the
Fund's fixed income portfolio which is occurring as interest rates
rise.
Prior to the expiration of a call written by the Fund, or exercise
of it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the
second option will be less than the premium received by the Fund
for the initial option. The net premium income of the Fund will
then offset the decrease in value of the hedged securities.
Writing Put Options on Financial Futures Contracts
The Fund may write listed put options on financial futures
contracts for U.S. government securities to hedge its portfolio
against a decrease in market interest rates. When the Fund writes
a put option on a futures contract, it receives a premium for
undertaking the obligation to assume a long futures position
(buying a futures contract) at a fixed price at any time during
the life of the option. As market interest rates decrease, the
market price of the underlying futures contract normally
increases.
As the market value of the underlying futures contract increases,
the buyer of the put option has less reason to exercise the put
because the buyer can sell the same futures contract at a higher
price in the market. The premium received by the Fund can then be
used to offset the higher prices of portfolio securities to be
purchased in the future due to the decrease in market interest
rates.
Prior to the expiration of the put option, or its exercise by the
buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of buying the second
option will be less than the premium received by the Fund for the
initial option.
Purchasing Call Options on Financial Futures Contracts
An additional way in which the Fund may hedge against decreases in
market interest rates is to buy a listed call option on a
financial futures contract for U.S. government securities. When
the Fund purchases a call option on a futures contract, it is
purchasing the right (not the obligation) to assume a long futures
position (buy a futures contract) at a fixed price at any time
during the life of the option. As market interest rates fall, the
value of the underlying futures contract will normally increase,
resulting in an increase in value of the Fund's option position.
When the market price of the underlying futures contract increases
above the strike price plus premium paid, the Fund could exercise
its option and buy the futures contract below market price.
Prior to the exercise or expiration of the call option, the Fund
could sell an identical call option and close out its position. If
the premium received upon selling the offsetting call is greater
than the premium originally paid, the Fund has completed a
successful hedge.
Limitation on Open Futures Positions
The Fund will not maintain open positions in futures contracts it
has sold or call options it has written on futures contracts if,
in the aggregate, the value of the open positions (marked to
market) exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is
exceeded at any time, the Fund will take prompt action to close
out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay
or receive money upon the purchase or sale of a futures contract.
Rather, the Fund is required to deposit an amount of "initial
margin" in cash or U.S. Treasury bills with its custodian (or the
broker, if legally permitted). The nature of initial margin in
futures transactions is different from that of margin in
securities transactions in that futures contract initial margin
does not involve the borrowing of funds by the Fund to finance the
transactions. Initial margin is in the nature of a performance
bond or good-faith deposit on the contract which is returned to
the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the
official settlement price of the exchange on which it is traded.
Each day the Fund pays or receives cash, called "variation
margin," equal to the daily change in value of the futures
contract. This process is known as "marking to market." Variation
margin does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the amount
one would owe the other if the futures contract expired. In
computing its daily net asset value, the Fund will mark to market
its open futures positions.
The Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
Purchasing Put and Call Options on U.S. Government Securities
The Fund may purchase put and call options on U.S. government
securities to protect against price movements in particular
securities. A put option gives the Fund, in return for a premium,
the right to sell the underlying security to the writer (seller)
at a specified price during the term of the option. A call option
gives the Fund, in return for a premium, the right to buy the
underlying security from the seller.
Writing Covered Put and Call Options on U.S. Government Securities
The Fund may write covered put and call options to generate
income. As writer of a call option, the Fund has the obligation
upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. As a
writer of a put option, the Fund has the obligation to purchase a
security from the purchaser of the option upon the exercise of the
option.
The Fund may only write call options either on securities held in
its portfolio or on securities which it has the right to obtain
without payment of further consideration (or has segregated cash
in the amount of any additional consideration). In the case of put
options, the Fund will segregate cash or U.S. Treasury obligations
with a value equal to or greater than the exercise price of the
underlying securities.
Lending of Portfolio Securities
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Fund or the borrower. The
Fund may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker.
Repurchase Agreements
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are 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 will only enter into repurchase agreements
with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Board of
Directors.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate. The use of reverse repurchase
agreements may enable the Fund to avoid selling portfolio instruments at
a time when a sale may be deemed to be disadvantageous, but the ability
to enter into reverse repurchase agreements does not ensure that the
Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated at the trade date. These securities are marked
to market daily and maintained until the transaction is settled.
Portfolio Turnover
The Fund will not attempt to set or meet a portfolio turnover rate since
any turnover would be incidental to transactions undertaken in an
attempt to achieve the Fund's investment objective. For the fiscal years
ended February 28, 1995, and 1994, the portfolio turnover
rates were 143% and 134%, respectively. The elevated
portfolio turnover rate is a result of the Fund's acquisition of
securities that were more in line with current market conditions
relating to pre-payments and coupon rates. This had no significant
impact on the tax liability of the Fund and its shareholders, and Fund
expenses were not a factor as the Fund incurred no brokerage
commissions.
Investment Limitations
Buying on Margin
The Fund will not purchase any securities on margin, but may
obtain such short-term credits as are necessary for clearance of
transactions. The deposit or payment by the Fund of initial or
variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a
security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that the Fund may
borrow money and engage in reverse repurchase agreements in
amounts up to one-third of the value of its net assets, including
the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of
the portfolio by enabling the Fund to meet redemption requests
when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Fund will not purchase any
securities while any such borrowings are outstanding. During the
period any reverse repurchase agreements are outstanding, but only
to the extent necessary to assure completion of the reverse
repurchase agreements, the Fund will restrict the purchase of
portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In these cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 10% of the value of total assets at
the time of the borrowing. Neither the deposit of underlying
securities and other assets in escrow in connection with the
writing of put or call options on U.S. government securities nor
margin deposits for the purchase and sale of financial futures
contracts and related options are deemed to be a pledge.
Investing in Real Estate
The Fund will not buy or sell real estate, although it may invest
in securities of companies whose business involves the purchase or
sale of real estate or in securities which are secured by real
estate or interests in real estate.
Investing in Commodities
The Fund will not purchase or sell commodities, except that the
Fund may purchase and sell financial futures contracts and related
options.
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.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio
securities. (This shall not prevent the purchase or holding of
U.S. government securities, repurchase agreements covering U.S.
government securities, or other transactions which are permitted
by the Fund's investment objective and policies.)
Selling Short
The Fund will not sell securities short.
Restricted Securities
The Fund will not invest more than 10% of its total assets in
securities subject to restrictions on resale under the Securities
Act of 1933.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Board of 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 the value
of its net assets in securities which are not readily marketable
or which are otherwise considered illiquid, including over-the-
counter options and repurchase agreements providing for settlement
in more than seven days after notice.
Investing in Securities of Other Investment Companies
The Fund will not purchase securities of other investment
companies.
Writing Covered Put and Call Options and Purchasing Put Options
The Fund will not write call options on securities unless the
securities are held in the Fund's portfolio or unless the Fund is
entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment. When
writing put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise
price of the underlying securities. The Fund will not purchase put
options on securities unless the securities are held in the Fund's
portfolio.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of the 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 engage in reverse repurchase agreements, borrow money,
or invest in illiquid securities in excess of 5% of the value of its
total assets during the last fiscal year, and has no present intent to
do so in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items."
Cash items may include short-term obligations such as:
- obligations of the U.S. government or its agencies or
instrumentalities; and
- repurchase agreements.
Fund Management
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 Services Company,
Federated Securities Corp., Federated Administrative Services, and the
Funds (as defined below).
Officers and Directors are listed with their addresses,
principal occupations, and present positions.
Government Income Securities, Inc. Management
Officers and Directors are listed with their addresses, present
positions with Government Income Securities, Inc., and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Company.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Director
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Director
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Director
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Director
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Richard B. Fisher *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Director
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Director
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General 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
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Director
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Director
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; 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
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Director
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Director
of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
* This Director is deemed to be an "interested person" as
defined in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Directors handles the responsibilities of the
Board of Directors between meetings of the Board.
The Funds
As used in the table above, "The Funds" and "Funds" mean the
following investment companies: American Leaders Fund, Inc.; Annuity
Management Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash
Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income
Securities Trust; Federated Income Trust; Federated Index Trust;
Federated Institutional Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund
for U.S. Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Term Trust, Inc. - 1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust;
The Medalist Funds: Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; Newpoint Funds; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; Trust for U.S. Treasury Obligations;
World Investment Series, Inc.
Fund Ownership
Officers and Directors own less than 1% of the Fund's outstanding
shares.
Merrill Lynch, Pierce, Fenner & Smith, as record owner holding Fund
shares for its clients, owned approximately 79,755 shares
44.22% of the Fund as of April 7, 1995.
Directors Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND*# FROM FUND COMPLEX
Thomas G. Bigley $1,984.00 $3,632.00 for the Fund
and
50 other
investment companies in the Fund Complex
John T. Conroy, Jr. $4,621.00 $17,311.00 for the Fund
and
65 other investment
companies in the Fund Complex
William J. Copeland $4,621.00 $17,311.00 for the Fund
and
65 other investment
companies in the Fund Complex
James E. Dowd $4,621.00 $17,311.00 for the Fund
and
65 other investment
companies in the Fund Complex
Lawrence D. Ellis, M.D. $4,185.00 $15,695.00 for the Fund
and
65 other investment
companies in the Fund Complex
Edward L. Flaherty, Jr. $4,621.00 $17,311.00 for the Fund
and
65 other investment
companies in the Fund Complex
Peter E. Madden $3,569.00 $13,361.00 for the Fund
and
65 other investment
companies in the Fund Complex
Gregor F. Meyer $4,185.00 $15,695.00 for the Fund
and
65 other investment
companies in the Fund Complex
John E. Murray, Jr. $ -0- $0 for the Fund and
69 other investment
companies in the Fund Complex
Wesley W. Posvar $4,185.00 $15,695.00 for the Fund
and
65 other investment
companies in the Fund Complex
Marjorie P. Smuts $4,185.00 $15,695.00 for the Fund
and
65 other investment
companies in the Fund Complex
* Information is furnished for the fiscal year ended January 31, 1995.
# The aggregate compensation is provided for the Fund which is comprised
of one portfolio.
+ The information is provided for the last calendar year.
Investment Advisory Services
Adviser to the Fund
The Fund's investment adviser is Federated Advisers. It is a subsidiary
of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the Trustees of which are John F.
Donahue, his wife, and his son, J. Christopher Donahue.
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 February 28, 1995, 1994, and 1993,
the Fund's adviser earned $22,038,188, $28,541,303,
and $21,620,403, respectively, of which
$6,801,420, $7,242,625, and $0, respectively, were
voluntarily waived.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee
described in the prospectus. Prior to March 1, 1994,
Federated Administrative Services, Inc., also a subsidiary of Federated
Investors, served as the Fund's administrator. For the fiscal year ended
February 28, 1995, Federated Administrative Services earned
$2,232,807. For the fiscal years ended February 28, 1994, and
1993, Federated Administrative Services, Inc., earned
$ 2,638,423, $ 1,705,319, respectively. Dr. Henry
J. Gailliot, an officer of Federated Advisors, the
Adviser to the Fund, holds approximately 20%,
of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Fund. The fee paid to the transfer agent is
based upon the size, type and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Fund's accounting records.
The fee paid for this service is based upon the level of the Fund's
average net assets for the period plus out-of-pocket expenses.
Shareholder Services Plan
This arrangement permits the payment of fees to Federated Shareholder
Services and, indirectly, to financial institutions to cause services to
be provided to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to, providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish
and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses. For the
fiscal period ending February 28, 1995, payments in the
amount of $ 7,346,063 were made pursuant to the
Shareholder Services Plan, all of which was paid to financial
institutions.
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.
For the fiscal years ended February 28, 1995, 1994, and
1993, the Fund paid $0, $0, and $0, respectively,
in brokerage commissions on brokerage transactions.
Purchasing Shares
Except under certain circumstances described in the prospectus, shares
are sold at their net asset value plus a sales load on
days the New York Stock Exchange is open for business. The procedure for
purchasing shares of the Fund is explained in the prospectus under
"Investing in the Fund."
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 and Trust
Company ("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 shares at net
asset value without a sales load and are not subject to a
redemption fee to the extent the financial institution through which the
shares are sold agrees to waive any initial payment to which it might
otherwise be entitled. Shares may also be sold without sales
loads 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.
Determining Market Value of Securities
Market values of the Fund's portfolio securities are determined as
follows:
- as provided by an independent pricing service;
- for short-term obligations, according to the mean between the
bid and asked prices, as furnished by an independent pricing
service, or for short-term obligations with remaining maturities
of 60 days or less at the time of purchase, at amortized cost
unless the Board of Directors determines this is not fair value;
or
- at fair value as determined in good faith by the Fund's Board
of Directors.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices. Pricing services may
consider:
- yield;
- quality;
- coupon rate;
- maturity;
- type of issue;
- trading characteristics; and
- other market data.
Over-the-counter put options will be valued at the mean between the bid
and the asked prices. Covered call options will be valued at the last
sale price on the national exchange on which such option is traded.
Unlisted call options will be valued at the latest bid price as provided
by brokers.
Exchange Privilege
The Securities and Exchange Commission has issued an order exempting the
Fund from certain provisions of the Investment Company Act of 1940. As a
result, Fund shareholders are allowed to exchange all or some of their
shares for shares in other Fortress Funds or certain Federated Funds
which are sold with a sales load different from that of
the Fund or with no sales load and which are advised by
subsidiaries or affiliates of Federated Investors. These exchanges are
made at net asset value plus the difference between the Fund's sales
load already paid and any sales load of
the fund into which the shares are to be exchanged, if higher.
The order also allows certain other funds, including funds that are not
advised by subsidiaries or affiliates of Federated Investors, which do
not have a sales load, to exchange their shares for Fund
shares on a basis other than their current offering price. These
exchanges may be made to the extent that such shares were acquired in a
prior exchange, at net asset value, for shares of a Federated Fund
carrying a sales load.
Reduced Sales Load
If a shareholder making such an exchange qualifies for a reduction or
elimination of the sales load, the shareholder must
notify Federated Securities Corp.
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 fund shares being acquired may be sold. Upon receipt of proper
instructions and required supporting documents, shares submitted for
exchange are redeemed and the proceeds invested in shares of the other
fund.
Further information on the exchange privilege and prospectuses for
Fortress Funds or certain Federated Funds are available by calling the
Fund.
Tax Consequences
Exercise of this exchange privilege is treated as a sale for federal
income tax purposes. Depending upon the circumstances, a short-term or
long-term capital gain or loss may be realized.
Making an Exchange
Instructions for exchanges for Fortress Funds or certain Federated Funds
may be given in writing or by telephone. Written instructions may
require a signature guarantee.
Telephone Instructions
Telephone instructions made by the investor may be carried out
only if a telephone authorization form completed by the investor
is on file with the Fund or its agent. If the instructions are
given by a broker, a telephone authorization form completed by the
broker must be on file with the Fund or its agent. Shares may be
exchanged between two funds by telephone only if the two funds
have identical shareholder registrations.
Telephoned exchange instructions may be recorded. They must be
received by the Fund or its agent before 4:00 p.m. (Eastern time)
for shares to be exchanged that day. The Fund will follow the
above procedures and others to protect shareholders, and itself,
against losses from unauthorized telephone instructions.
Redeeming Shares
The Fund redeems shares at the next computed net asset value after the
Fund receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares." Although the Fund
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.
Certain shares redeemed within one to four years of purchase may be
subject to a contingent deferred sales charge. The amount of the
contingent deferred sales charge is based upon the amount of the
administrative fee paid at the time of purchase by the distributor to
the administrator for services rendered and the length of time the
investor remains a shareholder in the Fund. Should administrators elect
to receive an administrative fee that is less than that stated in the
prospectus for servicing a particular shareholder, the contingent
deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
Redemption in Kind
Although the Fund intends to redeem shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Board of Directors determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem shares
for any shareholder in cash up to the lesser of $250,000 or 1% of the
Fund's net asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
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.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional shares. No portion of any income
dividend paid by the Fund is eligible for the dividends received
deduction available to corporations. These dividends, and any short-term
capital gains, are taxable as ordinary income.
Capital Gains
Shareholders will pay federal tax at capital gains rates on long-
term capital gains distributed to them regardless of how long they
have held the Fund shares.
Total Return
The Fund's average annual total returns for the one-year and five-year
periods ended February 28, 1995, and for the period from
April 4, 1986 (effective date of the Fund's registration statement), to
February 28, 1995, were 0.04%, 6.83%, and 7.18%,
respectively.
The average annual total return for 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 maximum offering price per share at the
end of the period. The number of shares owned at the end of the period
is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales load, adjusted over the
period by any additional shares, assuming the monthly reinvestment of
all dividends and distributions. Any applicable contingent deferred
sales charge is deducted from the ending value of the investment based
on the lesser of the original purchase price or the offering price of
shares redeemed.
Yield
The Fund's yield for the thirty-day period ended February 28,
1995, was 7.00%.
The yield for the Fund is determined by dividing the net investment
income per share (as defined by the Securities and Exchange Commission)
earned by the Fund over a thirty-day period by the maximum offering
price per share of the Fund 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 twelve 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 the Fund, the performance will be reduced for those shareholders
paying those fees.
Current Distributions
The Fund's average net annualized current distribution rate for the
thirty days ended February 28, 1995, was 7.00%.
The Fund calculates its current distributions daily based upon its past
twelve months' income dividends and short-term capital gains
distributions per share divided by its offering price per share on that
day. The Fund may reduce the time period upon which it bases its
calculation of current distributions if the investment adviser believes
a shortened period would be more representative in light of current
market conditions.
Performance Comparisons
The Fund's performance 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 Fund expenses; and
- various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and offering price per share fluctuate daily. Both net earnings
and offering price per share are factors in the computation of yield and
total return.
Investors may use financial publications and /or indices to obtain a
more complete view of the Fund's performance. When comparing
performance, investors should consider all relevant factors such as the
composition of any index used, prevailing market conditions, portfolio
compositions of other funds, and methods used to value portfolio
securities and compute offering price. The financial publications and/or
indices which the Fund uses in advertising may include:
- Lipper Analytical Services, Inc., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains
distributions and income dividends and takes into account any
change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "U.S.
government funds" category in advertising and sales literature.
- Salomon Brothers 15-Year Mortgage-Backed Securities Index
includes the average of all 15-year mortgage securities, which
include Federal Home Loan Mortgage Corporation (Freddie Mac),
Federal National Mortgage Association (Fannie Mae), and Government
National Mortgage Association (Ginnie Mae).
- The Merrill Lynch Taxable Bond Indices include U.S. Treasury
and agency issues and were designed to keep pace with structural
changes in the fixed income market. The performance indicators
capture all rating changes, new issues, and any structural changes
of the entire market.
- 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 to their risk-adjusted returns. The maximum rating is
five stars, and ratings are effective for two weeks.
Advertisements and other sales literature for the Fund may quote total
returns, which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an
investment in the Fund based on monthly reinvestment of dividends over a
specified period of time.
From time to time the Fund may advertise its performance, using charts,
graphs, and descriptions, compared to federally insured bank products,
including certificates of deposits and time deposits, and to money
market funds using the Lipper Analytical Services money market
instruments average.
Advertisements may quote performance information which does not reflect
the effect of a sales load.
383733102
8040406B (4/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (filed in Part A).
(b) Exhibits:
(1) (i) Paper conformed copy of Articles of
Incorporation of the Registrant (3.);
(ii) Paper conformed copy of Agreement and Plan
of Reorganization (4.);
(2) (i) Paper copy of By-Laws of the Registrant
as Restated and Amended (5.);
(ii) Copy of By-Laws Amendment of 2/87 (6.);
(iii) Copy of By-Laws Amendment of 8/87 (6.);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of
Capital Stock of the Registrant;+
(5) Conformed copy of Investment Advisory Contract
of the Registrant (8.);
(6) (i) Conformed copy of Distributor's Contract
of the Registrant (8.);
(ii) Conformed copy of Sales Agreement of the
Registrant (8.);
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the
Registrant;+
(9) (i)Conformed copy of Shareholder Services Plan
of the Registrant;+
(ii)Copy of Shareholder Services Sub-Contract of
the Registrant;+
(iii)Conformed copy of Shareholder Services
Agreement of the Registrant;+
(iv)Conformed copy of Administrative Services
Agreement of the Registrant;+
(v)Conformed copy of Agreement for Fund
Accounting, Shareholder Recordkeeping,
and Custody Services Procurement;+
(10) Conformed copy of Opinion and Consent of
Counsel as to Legality of Shares Being
Registered;+
(11) Conformed copy of Consent of Independent Public
Accountants;+
(12) Not applicable;
(13) Conformed copy of Initial Capital
Understanding;+
(14) Paper copy of Federated Prototype Retirement
Plan (3.);
(15) Not applicable;
(16) Copy of Schedule for Computation of Fund
Performance Data;+
(17) Financial Data Schedule;+
(18) Not applicable;
(19) Conformed copy of Power of Attorney+.
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None
+ All exhibits have been filed electronically.
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 9 on Form N-1A filed January 31, 1986.
(File Nos. 2-74191 and 811-3266)
4. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 10 on Form N-1A filed April 4, 1986.
(File Nos. 2-74191 and 811-3266)
5. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 13 on Form N-1A filed October 29, 1986.
(File Nos. 2-74191 and 811-3266)
6. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 16 on Form N-1A filed April 22, 1988.
(File Nos. 2-74191 and 811-3266)
8. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 19 on Form N-1A filed February 26, 1990.
(File Nos. 2-74191 and 811-3266)
11. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 26 on Form N-1A filed April 23,1993. (File
Nos. 2-74191 and 811-3266)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of April 10, 1995
Shares of Capital Stock 79,755
($.001 per Share par value)
Item 27. Indemnification: (1.)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the
investment adviser, see the section entitled "Fund
Information - Management of the Fund" in Part A. The
affiliations with the Registrant of four of the
Trustees and one of the Officers of the investment
adviser are included in Part B of this Registration
Statement under "Fund Management - Officers and
Directors." The remaining Trustee of the investment
adviser, his position with the investment adviser, and,
in parentheses, his principal occupation is: Mark D.
Olson (Partner, Wilson, Halbrook & Bayard) 107 West
Market Street, Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
Mark L. Mallon, William D. Dawson, III, and J. Thomas
Madden, Executive Vice Presidents; Henry J. Gailliot,
Senior Vice President-Economist; Peter R. Anderson, and
J. Alan Minteer, Senior Vice Presidents; J. Scott
Albrecht, Randall A. Bauer, David A. Briggs, Jonathan
C. Conley, Deborah A. Cunningham, Michael P. Donnelly,
Mark E. Durbiano, Kathleen M. Foody-Malus, Thomas M.
Franks, Edward C. Gonzales, Jeff A. Kozemchak, Marian
R. Marinack, John W. McGonigle, Susan M. Nason, Mary
Jo Ochson, Robert J. Ostrowski, Frederick L. Plautz,
Jr., Charles A. Ritter, James D. Roberge, Sandra L.
Weber, and Christopher H. Wiles, Vice Presidents;
Edward C. Gonzales, Treasurer; and John W. McGonigle,
Secretary. The business address of each of the
Officers of the investment adviser is Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
These individuals are also officers of a majority of
the investment advisers to the Funds listed in Part B
of this Registration Statement under "The Funds."
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares
of the Registrant, also acts as principal underwriter
for the following open-end investment companies:
Alexander Hamilton Funds; American Leaders Fund, Inc.;
Annuity Management Series; Arrow Funds; Automated Cash
Management Trust; Automated Government Money Trust;
BayFunds; The Biltmore Funds; The Biltmore Municipal
Funds; California Municipal Cash Trust; Cash Trust
Series, Inc.; Cash Trust Series II; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust;
Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional
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; First Union
Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund,
Inc.; Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Independence One Mutual Funds;
Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty U.S.
Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; The
Monitor Funds; Municipal Securities Income Trust;
Newpoint Funds; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; SouthTrust Vulcan Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Tower Mutual Funds;
Trademark Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; The Virtus Funds; Vision
Fiduciary Funds, Inc.; Vision Group of Funds, Inc.; and
World Investment Series, Inc.
Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment
company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief INSERT OFFICE
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice INSERT OFFICE
Federated Investors Tower President, and Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
John B. Bohnet Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph L. Epstein Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With
Registrant
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Stephen A. LaVersa Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
Government Income Securities, Inc. Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, Pennsylvania Disbursing Agent
and Portfolio 15222-3779
Recordkeeper")
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, Pennsylvania
15222-3779
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, Pennsylvania
15222-3779
State Street Bank and Trust Company P.O. Box 8604
("Custodian") Boston, Massachusetts
02266-8604
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, GOVERNMENT INCOME
SECURITIES, INC. has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania,
on the 20th day of April, 1995.
GOVERNMENT INCOME SECURITIES, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
April 20, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Charles H. Field
Charles H. Field Attorney In Fact April 20, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under 601/Reg. SK
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Post-Effective Amendment No. 30 to Registration
Statement (No. 2-74191) of Government Income Securities, Inc. of our
report dated April 17,1995, appearing in the Prospectus, which is part
of such Registration Statement, and to the reference to us under the
heading "Financial Highlights" in such Prospectus..
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 17, 1995
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of GOVERNMENT INCOME
SECURITIES, INC., and the Assistant General Counsel of Federated
Investors, and each of them, their true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution for them and
in their names, place and stead, in any and all capacities, to sign any
and all documents to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of
the Securities and Exchange Commission's electronic disclosure system
known as EDGAR; and to file the same, with all exhibits thereto and
other documents in connection thterewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents,
and each of them, full power and authority to sign and perform each and
every act and thing requisite and necessary to be done in connection
thereiwth, as fully to all intents and purposes as each of them might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman and Director April 13, 1995
John F. Donahue (Chief Executive Officer)
/s/ Richard B. Fisher President and Director April 13, 1995
Richard B. Fisher
/s/ Edward C. Gonzales Vice President & Treasurer April 13, 1995
Edward C. Gonzales (Principal Financial and
Accounting Officer)
/s/ Thomas G. Bigley Director April 13, 1995
Thomas G. Bigley
/s/ John T. Conroy, Jr. Director April 13, 1995
John T. Conroy, Jr.
/s/ William J. Copeland Director April 13, 1995
William J. Copeland
/s/ James E. Dowd Director April 13, 1995
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Director April 13, 1995
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty, Jr. Director April 13, 1995
Edward L. Flaherty, Jr.
/s/ Peter E. Madden Director April 13, 1995
Peter E. Madden
/s/ Gregor F. Meyer Director April 13, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Director April 13, 1995
John E. Murray, Jr.
/s/ Wesley W. Posvar Director April 13, 1995
Wesley W. Posvar
/s/ Marjorie P. Smuts Director April 13, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 13th day of April, 1995.
/s/ Marie M. Hamm
Notary Public
Exhibit 4 under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
GOVERNBMENT INCOME SECURITIES, INC.
Number Shares
_____ _____
Account No. Alpha Code Incorporated Under the See Reverse Side For
Laws of the State Certain Definitions
of Maryland
THIS IS TO CERTIFY THAT is the owner of
CUSIP 383733102
Fully Paid and Non-Assessable Shares of Capital Stock, par value $.001
of GOVERNBMENT INCOME SECURITIES, INC., hereafter called the
"Corporation," transferable on the books of the Corporation by the owner
in person or by duly authorized attorney upon surrender of this
certificate properly endorsed.
The shares represented hereby are issued and shall be held subject
to the provisions of the Charter and By-Laws of the Corporation and all
amendments thereto, to all of which the holder by acceptance hereof
assents.
This Certificate is not valid unless countersigned by the Transfer
Agent.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed in its name by its proper officers and to be sealed with its
Corporate seal.
Dated: GOVERNBMENT INCOME SECURITIES, INC.
Corporate Seal
19
Maryland
/s/ Edward C. Gonzales /s/ John F. Donahue
Treasurer President
Countersigned: State Street Bank
and Trust Company (Boston)
Transfer Agent
By:
Authorized Signature
Exhibit 4 under Form N-1A
Exhibit 3(c) under Item 601/Reg. S-K
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in
full according to applicable laws or regulations;
TEN COM - as tenants in common UNIF GIFT MIN ACT-
...Custodian...
TEN ENT - as tenants by the entireties (Cust) (Minors)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants
Act.............................
in common (State)
Additional abbreviations may also be used though not in the above
list.
For value received__________ hereby sell, assign, and transfer
unto
Please insert social security or other
identifying number of assignee
______________________________________
________________________________________________________________________
(Please print or typewrite name and address, including zip code, of
assignee)
________________________________________________________________________
________________________________________________________________________
______________________________________________________________________
shares
of capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
__________________________________________
________________________________________________________________________
to transfer the said shares on the books of the within named Corporation
with full power of substitution in the premises.
Dated______________________
NOTICE:_____________________________
_
The signature to this assignment
must correspond with the name as
written upon the face of the
certificate in every particular,
without alteration or enlargement or
any change whatever.
THIS SPACE MUST NOT BE COVERED IN ANY WAY
DOCUMENT DESCRIPTION - SPECIMEN STOCK CERTIFICATE
Page One
A. The Certificate is outlined by an (color) one-half inch border.
B. The number in the upper left-hand corner and the number of shares
in the upper right-hand corner are outlined by octagonal boxes.
C. The cusip number in the middle right-hand area of the page is
boxed.
D. The Massachusetts corporate seal appears in the bottom middle of
the page.
Page Two
The social security or other identifying number of the assignee
appears in a box in the top-third upper-left area of the page.
Exhibit 8 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It 1
2. Duties of the Custodian With Respect to Property of the
Funds Held by the Custodian 2
2.1 Holding Securities 2
2.2 Delivery of Securities 2
2.3 Registration of Securities 5
2.4 Bank Accounts 6
2.5 Payments for Shares 7
2.6 Availability of Federal Funds 7
2.7 Collection of Income 7
2.8 Payment of Fund Moneys 8
2.9 Liability for Payment in Advance of Receipt of
Securities Purchased. 9
2.10 Payments for Repurchases or Redemptions of Shares of a
Fund 9
2.11 Appointment of Agents 10
2.12 Deposit of Fund Assets in Securities System 10
2.13 Segregated Account 12
2.14 Joint Repurchase Agreements 13
2.15 Ownership Certificates for Tax Purposes 13
2.16 Proxies 13
2.17 Communications Relating to Fund Portfolio Securities 13
2.18 Proper Instructions 14
2.19 Actions Permitted Without Express Authority 14
2.20 Evidence of Authority 15
2.21 Notice to Trust by Custodian Regarding Cash Movement. 15
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income 15
4. Records 16
5. Opinion of Funds' Independent Public
Accountants/Auditors 16
6. Reports to Trust by Independent Public
Accountants/Auditors 17
7. Compensation of Custodian 17
8. Responsibility of Custodian 17
9. Effective Period, Termination and Amendment 19
10. Successor Custodian 20
11. Interpretive and Additional Provisions 21
12. Massachusetts Law to Apply 22
13. Notices 22
14. Counterparts 22
15. Limitations of Liability 22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on Exhibit 1, as
it may be amended from time to time, (the "Trust"), which may be
Massachusetts business trusts or Maryland corporations or have such
other form of organization as may be indicated, on behalf of the
portfolios (hereinafter collectively called the "Funds" and individually
referred to as a "Fund") of the Trust, having its principal place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-
3779, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian", and
FEDERATED SERVICES COMPANY, a Delaware business trust company, having
its principal place of business at Federated Investors Tower,
Pittsburgh, Pennsylvania, 15222-3779, hereinafter called ("Company").
WITNESSETH: That in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian of the
assets of each of the Funds of the Trust. Except as otherwise
expressly provided herein, the securities and other assets of each
of the Funds shall be segregated from the assets of each of the
other Funds and from all other persons and entities. The Trust
will deliver to the Custodian all securities and cash owned by the
Funds and all payments of income, payments of principal or capital
distributions received by them with respect to all securities
owned by the Funds from time to time, and the cash consideration
received by them for shares ("Shares") of beneficial
interest/capital stock of the Funds as may be issued or sold from
time to time. The Custodian shall not be responsible for any
property of the Funds held or received by the Funds and not
delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Section 2.18), the Custodian shall from time to time employ one or
more sub-custodians upon the terms specified in the Proper
Instructions, provided that the Custodian shall have no more or
less responsibility or liability to the Trust or any of the Funds
on account of any actions or omissions of any sub-custodian so
employed than any such sub-custodian has to the Custodian.
2. Duties of the Custodian With Respect to Property of the Funds Held
by the Custodian
2.1 Holding Securities. The Custodian shall hold and physically
segregate for the account of each Fund all non-cash
property, including all securities owned by each Fund, other
than securities which are maintained pursuant to Section
2.12 in a clearing agency which acts as a securities
depository or in a book-entry system authorized by the U.S.
Department of the Treasury, collectively referred to herein
as "Securities System", or securities which are subject to a
joint repurchase agreement with affiliated funds pursuant to
Section 2.14. The Custodian shall maintain records of all
receipts, deliveries and locations of such securities,
together with a current inventory thereof, and shall conduct
periodic physical inspections of certificates representing
stocks, bonds and other securities held by it under this
Contract in such manner as the Custodian shall determine
from time to time to be advisable in order to verify the
accuracy of such inventory. With respect to securities held
by any agent appointed pursuant to Section 2.11 hereof, and
with respect to securities held by any sub-custodian
appointed pursuant to Section 1 hereof, the Custodian may
rely upon certificates from such agent as to the holdings of
such agent and from such sub-custodian as to the holdings of
such sub-custodian, it being understood that such reliance
in no way relieves the Custodian of its responsibilities
under this Contract. The Custodian will promptly report to
the Trust the results of such inspections, indicating any
shortages or discrepancies uncovered thereby, and take
appropriate action to remedy any such shortages or
discrepancies.
2.2 Delivery of Securities. The Custodian shall release and
deliver securities owned by a Fund held by the Custodian or
in a Securities System account of the Custodian only upon
receipt of Proper Instructions, which may be continuing
instructions when deemed appropriate by the parties, and
only in the following cases:
(1) Upon sale of such securities for the account of a Fund
and receipt of payment therefor;
(2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities entered
into by the Trust;
(3) In the case of a sale effected through a Securities
System, in accordance with the provisions of Section
2.12 hereof;
(4) To the depository agent in connection with tender or
other similar offers for portfolio securities of a
Fund, in accordance with the provisions of Section 2.17
hereof;
(5) To the issuer thereof or its agent when such securities
are called, redeemed, retired or otherwise become
payable; provided that, in any such case, the cash or
other consideration is to be delivered to the
Custodian;
(6) To the issuer thereof, or its agent, for transfer into
the name of a Fund or into the name of any nominee or
nominees of the Custodian or into the name or nominee
name of any agent appointed pursuant to Section 2.11 or
into the name or nominee name of any sub-custodian
appointed pursuant to Section 1; or for exchange for a
different number of bonds, certificates or other
evidence representing the same aggregate face amount or
number of units; provided that, in any such case, the
new securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of a
Fund, to the broker or its clearing agent, against a
receipt, for examination in accordance with "street
delivery custom"; provided that in any such case, the
Custodian shall have no responsibility or liability for
any loss arising from the delivery of such securities
prior to receiving payment for such securities except
as may arise from the Custodian's own failure to act in
accordance with the standard of reasonable care or any
higher standard of care imposed upon the Custodian by
any applicable law or regulation if such above-stated
standard of reasonable care were not part of this
Contract;
(8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization, reorganization
or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion
contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the
new securities and cash, if any, are to be delivered to
the Custodian;
(9) In the case of warrants, rights or similar securities,
the surrender thereof in the exercise of such warrants,
rights or similar securities or the surrender of
interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian;
(10)For delivery in connection with any loans of portfolio
securities of a Fund, but only against receipt of
adequate collateral in the form of (a) cash, in an
amount specified by the Trust, (b) certificated
securities of a description specified by the Trust,
registered in the name of the Fund or in the name of a
nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer, or (c)
securities of a description specified by the Trust,
transferred through a Securities System in accordance
with Section 2.12 hereof;
(11)For delivery as security in connection with any
borrowings requiring a pledge of assets by a Fund, but
only against receipt of amounts borrowed, except that
in cases where additional collateral is required to
secure a borrowing already made, further securities may
be released for the purpose;
(12)For delivery in accordance with the provisions of any
agreement among the Trust or a Fund, the Custodian and
a broker-dealer registered under the Securities
Exchange Act of 1934, as amended, (the "Exchange Act")
and a member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance with the
rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any
similar organization or organizations, regarding escrow
or other arrangements in connection with transactions
for a Fund;
(13)For delivery in accordance with the provisions of any
agreement among the Trust or a Fund, the Custodian, and
a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission
and/or any Contract Market, or any similar organization
or organizations, regarding account deposits in
connection with transaction for a Fund;
(14)Upon receipt of instructions from the transfer agent
("Transfer Agent") for a Fund, for delivery to such
Transfer Agent or to the holders of shares in
connection with distributions in kind, in satisfaction
of requests by holders of Shares for repurchase or
redemption; and
(15)For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Executive
Committee of the Trust on behalf of a Fund signed by an
officer of the Trust and certified by its Secretary or
an Assistant Secretary, specifying the securities to be
delivered, setting forth the purpose for which such
delivery is to be made, declaring such purpose to be a
proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be
made.
2.3 Registration of Securities. Securities held by the
Custodian (other than bearer securities) shall be registered
in the name of a particular Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian which
nominee shall be assigned exclusively to the Fund, unless
the Trust has authorized in writing the appointment of a
nominee to be used in common with other registered
investment companies affiliated with the Fund, or in the
name or nominee name of any agent appointed pursuant to
Section 2.11 or in the name or nominee name of any sub-
custodian appointed pursuant to Section 1. All securities
accepted by the Custodian on behalf of a Fund under the
terms of this Contract shall be in "street name" or other
good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the name of each Fund,
subject only to draft or order by the Custodian acting
pursuant to the terms of this Contract, and shall hold in
such account or accounts, subject to the provisions hereof,
all cash received by it from or for the account of each
Fund, other than cash maintained in a joint repurchase
account with other affiliated funds pursuant to Section 2.14
of this Contract or by a particular Fund in a bank account
established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940, as amended, (the "1940
Act"). Funds held by the Custodian for a Fund may be
deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust
companies as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or trust
company shall be qualified to act as a custodian under the
1940 Act and that each such bank or trust company and the
funds to be deposited with each such bank or trust company
shall be approved by vote of a majority of the Board of
Trustees/Directors ("Board") of the Trust. Such funds shall
be deposited by the Custodian in its capacity as Custodian
for the Fund and shall be withdrawable by the Custodian only
in that capacity. If requested by the Trust, the Custodian
shall furnish the Trust, not later than twenty (20) days
after the last business day of each month, an internal
reconciliation of the closing balance as of that day in all
accounts described in this section to the balance shown on
the daily cash report for that day rendered to the Trust.
2.5 Payments for Shares. The Custodian shall make such
arrangements with the Transfer Agent of each Fund, as will
enable the Custodian to receive the cash consideration due
to each Fund and will deposit into each Fund's account such
payments as are received from the Transfer Agent. The
Custodian will provide timely notification to the Trust and
the Transfer Agent of any receipt by it of payments for
Shares of the respective Fund.
2.6 Availability of Federal Funds. Upon mutual agreement
between the Trust and the Custodian, the Custodian shall
make federal funds available to the Funds as of specified
times agreed upon from time to time by the Trust and the
Custodian in the amount of checks, clearing house funds, and
other non-federal funds received in payment for Shares of
the Funds which are deposited into the Funds' accounts.
2.7 Collection of Income.
(1) The Custodian shall collect on a timely basis all
income and other payments with respect to registered
securities held hereunder to which each Fund shall be
entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely
basis all income and other payments with respect to
bearer securities if, on the date of payment by the
issuer, such securities are held by the Custodian or
its agent thereof and shall credit such income, as
collected, to each Fund's custodian account. Without
limiting the generality of the foregoing, the Custodian
shall detach and present for payment all coupons and
other income items requiring presentation as and when
they become due and shall collect interest when due on
securities held hereunder. The collection of income
due the Funds on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the
responsibility of the Trust. The Custodian will have
no duty or responsibility in connection therewith,
other than to provide the Trust with such information
or data as may be necessary to assist the Trust in
arranging for the timely delivery to the Custodian of
the income to which each Fund is properly entitled.
(2) The Custodian shall promptly notify the Trust whenever
income due on securities is not collected in due course
and will provide the Trust with monthly reports of the
status of past due income unless the parties otherwise
agree.
2.8 Payment of Fund Moneys. Upon receipt of Proper
Instructions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian shall pay
out moneys of each Fund in the following cases only:
(1) Upon the purchase of securities, futures contracts or
options on futures contracts for the account of a Fund
but only (a) against the delivery of such securities,
or evidence of title to futures contracts, to the
Custodian (or any bank, banking firm or trust company
doing business in the United States or abroad which is
qualified under the 1940 Act to act as a custodian and
has been designated by the Custodian as its agent for
this purpose) registered in the name of the Fund or in
the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer, (b)
in the case of a purchase effected through a Securities
System, in accordance with the conditions set forth in
Section 2.12 hereof or (c) in the case of repurchase
agreements entered into between the Trust and any other
party, (i) against delivery of the securities either in
certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with
such securities or (ii) against delivery of the receipt
evidencing purchase for the account of the Fund of
securities owned by the Custodian along with written
evidence of the agreement by the Custodian to
repurchase such securities from the Fund;
(2) In connection with conversion, exchange or surrender of
securities owned by a Fund as set forth in Section 2.2
hereof;
(3) For the redemption or repurchase of Shares of a Fund
issued by the Trust as set forth in Section 2.10
hereof;
(4) For the payment of any expense or liability incurred by
a Fund, including but not limited to the following
payments for the account of the Fund: interest; taxes;
management, accounting, transfer agent and legal fees;
and operating expenses of the Fund, whether or not such
expenses are to be in whole or part capitalized or
treated as deferred expenses;
(5) For the payment of any dividends on Shares of a Fund
declared pursuant to the governing documents of the
Trust;
(6) For payment of the amount of dividends received in
respect of securities sold short;
(7) For any other proper purpose, but only upon receipt of,
in addition to Proper Instructions, a certified copy of
a resolution of the Executive Committee of the Trust on
behalf of a Fund signed by an officer of the Trust and
certified by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting forth
the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and
naming the person or persons to whom such payment is to
be made.
2.9 Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase
of securities for the account of a Fund is made by the
Custodian in advance of receipt of the securities purchased,
in the absence of specific written instructions from the
Trust to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the
same extent as if the securities had been received by the
Custodian.
2.10Payments for Repurchases or Redemptions of Shares of a Fund.
From such funds as may be available for the purpose of
repurchasing or redeeming Shares of a Fund, but subject to
the limitations of the Declaration of Trust/Articles of
Incorporation and any applicable votes of the Board of the
Trust pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available
for payment to holders of shares of such Fund who have
delivered to the Transfer Agent a request for redemption or
repurchase of their shares including without limitation
through bank drafts, automated clearinghouse facilities, or
by other means. In connection with the redemption or
repurchase of Shares of the Funds, the Custodian is
authorized upon receipt of instructions from the Transfer
Agent to wire funds to or through a commercial bank
designated by the redeeming shareholders.
2.11Appointment of Agents. The Custodian may at any time or
times in its discretion appoint (and may at any time remove)
any other bank or trust company which is itself qualified
under the 1940 Act and any applicable state law or
regulation, to act as a custodian, as its agent to carry out
such of the provisions of this Section 2 as the Custodian
may from time to time direct; provided, however, that the
appointment of any agent shall not relieve the Custodian of
its responsibilities or liabilities hereunder.
2.12Deposit of Fund Assets in Securities System. The Custodian
may deposit and/or maintain securities owned by the Funds in
a clearing agency registered with the Securities and
Exchange Commission ("SEC") under Section 17A of the
Exchange Act, which acts as a securities depository, or in
the book-entry system authorized by the U.S. Department of
the Treasury and certain federal agencies, collectively
referred to herein as "Securities System" in accordance with
applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following
provisions:
(1) The Custodian may keep securities of each Fund in a
Securities System provided that such securities are
represented in an account ("Account") of the Custodian
in the Securities System which shall not include any
assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities
of the Funds which are maintained in a Securities
System shall identify by book-entry those securities
belonging to each Fund;
(3) The Custodian shall pay for securities purchased for
the account of each Fund upon (i) receipt of advice
from the Securities System that such securities have
been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect
such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the
account of a Fund upon (i) receipt of advice from the
Securities System that payment for such securities has
been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect
such transfer and payment for the account of the Fund.
Copies of all advices from the Securities System of
transfers of securities for the account of a Fund shall
identify the Fund, be maintained for the Fund by the
Custodian and be provided to the Trust at its request.
Upon request, the Custodian shall furnish the Trust
confirmation of each transfer to or from the account of
a Fund in the form of a written advice or notice and
shall furnish to the Trust copies of daily transaction
sheets reflecting each day's transactions in the
Securities System for the account of a Fund.
(4) The Custodian shall provide the Trust with any report
obtained by the Custodian on the Securities System's
accounting system, internal accounting control and
procedures for safeguarding securities deposited in the
Securities System;
(5) The Custodian shall have received the initial
certificate, required by Section 9 hereof;
(6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to the
Trust for any loss or damage to a Fund resulting from
use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian
or any of its agents or of any of its or their
employees or from failure of the Custodian or any such
agent to enforce effectively such rights as it may have
against the Securities System; at the election of the
Trust, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claim
against the Securities System or any other person which
the Custodian may have as a consequence of any such
loss or damage if and to the extent that a Fund has not
been made whole for any such loss or damage.
(7) The authorization contained in this Section 2.12 shall
not relieve the Custodian from using reasonable care
and diligence in making use of any Securities System.
2.13 Segregated Account. The Custodian shall upon receipt
of Proper Instructions establish and maintain a segregated
account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or
securities, including securities maintained in an account by
the Custodian pursuant to Section 2.12 hereof, (i) in
accordance with the provisions of any agreement among the
Trust, the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any futures
commission merchant registered under the Commodity Exchange
Act), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national
securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any
similar organization or organizations, regarding escrow or
other arrangements in connection with transactions for a
Fund, (ii) for purpose of segregating cash or government
securities in connection with options purchased, sold or
written for a Fund or commodity futures contracts or options
thereon purchased or sold for a Fund, (iii) for the purpose
of compliance by the Trust or a Fund with the procedures
required by any release or releases of the SEC relating to
the maintenance of segregated accounts by registered
investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt
of, in addition to Proper Instructions, a certified copy of
a resolution of the Board or of the Executive Committee
signed by an officer of the Trust and certified by the
Secretary or an Assistant Secretary, setting forth the
purpose or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.14 Joint Repurchase Agreements. Upon the receipt of
Proper Instructions, the Custodian shall deposit and/or
maintain any assets of a Fund and any affiliated funds which
are subject to joint repurchase transactions in an account
established solely for such transactions for the Fund and
its affiliated funds. For purposes of this Section 2.14,
"affiliated funds" shall include all investment companies
and their portfolios for which subsidiaries or affiliates of
Federated Investors serve as investment advisers,
distributors or administrators in accordance with applicable
exemptive orders from the SEC. The requirements of
segregation set forth in Section 2.1 shall be deemed to be
waived with respect to such assets.
2.15 Ownership Certificates for Tax Purposes. The Custodian
shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments with
respect to securities of a Fund held by it and in connection
with transfers of securities.
2.16 Proxies. The Custodian shall, with respect to the
securities held hereunder, cause to be promptly executed by
the registered holder of such securities, if the securities
are registered otherwise than in the name of a Fund or a
nominee of a Fund, all proxies, without indication of the
manner in which such proxies are to be voted, and shall
promptly deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such
securities.
2.17 Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Trust all
written information (including, without limitation, pendency
of calls and maturities of securities and expirations of
rights in connection therewith and notices of exercise of
call and put options written by the Fund and the maturity of
futures contracts purchased or sold by the Fund) received by
the Custodian from issuers of the securities being held for
the Fund. With respect to tender or exchange offers, the
Custodian shall transmit promptly to the Trust all written
information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the
party (or his agents) making the tender or exchange offer.
If the Trust desires to take action with respect to any
tender offer, exchange offer or any other similar
transaction, the Trust shall notify the Custodian in writing
at least three business days prior to the date on which the
Custodian is to take such action. However, the Custodian
shall nevertheless exercise its best efforts to take such
action in the event that notification is received three
business days or less prior to the date on which action is
required.
2.18 Proper Instructions. Proper Instructions as used
throughout this Section 2 means a writing signed or
initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of
transaction involved. Oral instructions will be deemed to
be Proper Instructions if (a) the Custodian reasonably
believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions
with respect to the transaction involved, and (b) the Trust
promptly causes such oral instructions to be confirmed in
writing. Upon receipt of a certificate of the Secretary or
an Assistant Secretary as to the authorization by the Board
of the Trust accompanied by a detailed description of
procedures approved by the Board, Proper Instructions may
include communications effected directly between electro-
mechanical or electronic devices provided that the Board and
the Custodian are satisfied that such procedures afford
adequate safeguards for a Fund's assets.
2.19 Actions Permitted Without Express Authority. The
Custodian may in its discretion, without express authority
from the Trust:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to
its duties under this Contract, provided that all such
payments shall be accounted for to the Trust in such
form that it may be allocated to the affected Fund;
(2) surrender securities in temporary form for securities
in definitive form;
(3) endorse for collection, in the name of a Fund, checks,
drafts and other negotiable instruments; and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the
securities and property of each Fund except as
otherwise directed by the Trust.
2.20Evidence of Authority. The Custodian shall be protected in
acting upon any instructions, notice, request, consent,
certificate or other instrument or paper reasonably believed
by it to be genuine and to have been properly executed on
behalf of a Fund. The Custodian may receive and accept a
certified copy of a vote of the Board of the Trust as
conclusive evidence (a) of the authority of any person to
act in accordance with such vote or (b) of any determination
of or any action by the Board pursuant to the Declaration of
Trust/Articles of Incorporation as described in such vote,
and such vote may be considered as in full force and effect
until receipt by the Custodian of written notice to the
contrary.
2.21Notice to Trust by Custodian Regarding Cash Movement. The
Custodian will provide timely notification to the Trust of
any receipt of cash, income or payments to the Trust and the
release of cash or payment by the Trust.
3. Duties of Custodian With Respect to the Books of Account and
Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Board of
the Trust to keep the books of account of each Fund and/or compute
the net asset value per share of the outstanding Shares of each
Fund or, if directed in writing to do so by the Trust, shall
itself keep such books of account and/or compute such net asset
value per share. If so directed, the Custodian shall also
calculate daily the net income of a Fund as described in the
Fund's currently effective prospectus and Statement of Additional
Information ("Prospectus") and shall advise the Trust and the
Transfer Agent daily of the total amounts of such net income and,
if instructed in writing by an officer of the Trust to do so,
shall advise the Transfer Agent periodically of the division of
such net income among its various components. The calculations of
the net asset value per share and the daily income of a Fund shall
be made at the time or times described from time to time in the
Fund's currently effective Prospectus.
4. Records.
The Custodian shall create and maintain all records relating to
its activities and obligations under this Contract in such manner
as will meet the obligations of the Trust and the Funds under the
1940 Act, with particular attention to Section 31 thereof and
Rules 31a-1 and 31a-2 thereunder, and specifically including
identified cost records used for tax purposes. All such records
shall be the property of the Trust and shall at all times during
the regular business hours of the Custodian be open for inspection
by duly authorized officers, employees or agents of the Trust and
employees and agents of the SEC. In the event of termination of
this Contract, the Custodian will deliver all such records to the
Trust, to a successor Custodian, or to such other person as the
Trust may direct. The Custodian shall supply daily to the Trust a
tabulation of securities owned by a Fund and held by the Custodian
and shall, when requested to do so by the Trust and for such
compensation as shall be agreed upon between the Trust and the
Custodian, include certificate numbers in such tabulations.
5. Opinion of Funds' Independent Public Accountants/Auditors.
The Custodian shall take all reasonable action, as the Trust may
from time to time request, to obtain from year to year favorable
opinions from each Fund's independent public accountants/auditors
with respect to its activities hereunder in connection with the
preparation of the Fund's registration statement, periodic
reports, or any other reports to the SEC and with respect to any
other requirements of such Commission.
6. Reports to Trust by Independent Public Accountants/Auditors.
The Custodian shall provide the Trust, at such times as the Trust
may reasonably require, with reports by independent public
accountants/auditors for each Fund on the accounting system,
internal accounting control and procedures for safeguarding
securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian for the
Fund under this Contract; such reports shall be of sufficient
scope and in sufficient detail, as may reasonably be required by
the Trust, to provide reasonable assurance that any material
inadequacies would be disclosed by such examination and, if there
are no such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to
time between Company and the Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable care in
carrying out the provisions of this Contract; provided, however,
that the Custodian shall be held to any higher standard of care
which would be imposed upon the Custodian by any applicable law or
regulation if such above stated standard of reasonable care was
not part of this Contract. The Custodian shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for
the Trust) on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice,
provided that such action is not in violation of applicable
federal or state laws or regulations, and is in good faith and
without negligence. Subject to the limitations set forth in
Section 15 hereof, the Custodian shall be kept indemnified by the
Trust but only from the assets of the Fund involved in the issue
at hand and be without liability for any action taken or thing
done by it in carrying out the terms and provisions of this
Contract in accordance with the above standards.
In order that the indemnification provisions contained in this
Section 8 shall apply, however, it is understood that if in any
case the Trust may be asked to indemnify or save the Custodian
harmless, the Trust shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is
further understood that the Custodian will use all reasonable care
to identify and notify the Trust promptly concerning any situation
which presents or appears likely to present the probability of
such a claim for indemnification. The Trust shall have the option
to defend the Custodian against any claim which may be the subject
of this indemnification, and in the event that the Trust so elects
it will so notify the Custodian and thereupon the Trust shall take
over complete defense of the claim, and the Custodian shall in
such situation initiate no further legal or other expenses for
which it shall seek indemnification under this Section. The
Custodian shall in no case confess any claim or make any
compromise in any case in which the Trust will be asked to
indemnify the Custodian except with the Trust's prior written
consent.
Notwithstanding the foregoing, the responsibility of the Custodian
with respect to redemptions effected by check shall be in
accordance with a separate Agreement entered into between the
Custodian and the Trust.
If the Trust requires the Custodian to take any action with
respect to securities, which action involves the payment of money
or which action may, in the reasonable opinion of the Custodian,
result in the Custodian or its nominee assigned to a Fund being
liable for the payment of money or incurring liability of some
other form, the Custodian may request the Trust, as a prerequisite
to requiring the Custodian to take such action, to provide
indemnity to the Custodian in an amount and form satisfactory to
the Custodian.
Subject to the limitations set forth in Section 15 hereof, the
Trust agrees to indemnify and hold harmless the Custodian and its
nominee from and against all taxes, charges, expenses,
assessments, claims and liabilities (including counsel fees)
(referred to herein as authorized charges) incurred or assessed
against it or its nominee in connection with the performance of
this Contract, except such as may arise from it or its nominee's
own failure to act in accordance with the standard of reasonable
care or any higher standard of care which would be imposed upon
the Custodian by any applicable law or regulation if such above-
stated standard of reasonable care were not part of this Contract.
To secure any authorized charges and any advances of cash or
securities made by the Custodian to or for the benefit of a Fund
for any purpose which results in the Fund incurring an overdraft
at the end of any business day or for extraordinary or emergency
purposes during any business day, the Trust hereby grants to the
Custodian a security interest in and pledges to the Custodian
securities held for the Fund by the Custodian, in an amount not to
exceed 10 percent of the Fund's gross assets, the specific
securities to be designated in writing from time to time by the
Trust or the Fund's investment adviser. Should the Trust fail to
make such designation, or should it instruct the Custodian to make
advances exceeding the percentage amount set forth above and
should the Custodian do so, the Trust hereby agrees that the
Custodian shall have a security interest in all securities or
other property purchased for a Fund with the advances by the
Custodian, which securities or property shall be deemed to be
pledged to the Custodian, and the written instructions of the
Trust instructing their purchase shall be considered the requisite
description and designation of the property so pledged for
purposes of the requirements of the Uniform Commercial Code.
Should the Trust fail to cause a Fund to repay promptly any
authorized charges or advances of cash or securities, subject to
the provision of the second paragraph of this Section 8 regarding
indemnification, the Custodian shall be entitled to use available
cash and to dispose of pledged securities and property as is
necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter
provided, may be amended at any time by mutual agreement of the
parties hereto and may be terminated by either party by an
instrument in writing delivered or mailed, postage prepaid to the
other party, such termination to take effect not sooner than sixty
(60) days after the date of such delivery or mailing; provided,
however that the Custodian shall not act under Section 2.12 hereof
in the absence of receipt of an initial certificate of the
Secretary or an Assistant Secretary that the Board of the Trust
has approved the initial use of a particular Securities System as
required in each case by Rule 17f-4 under the 1940 Act; provided
further, however, that the Trust shall not amend or terminate this
Contract in contravention of any applicable federal or state
regulations, or any provision of the Declaration of Trust/Articles
of Incorporation, and further provided, that the Trust may at any
time by action of its Board (i) substitute another bank or trust
company for the Custodian by giving notice as described above to
the Custodian, or (ii) immediately terminate this Contract in the
event of the appointment of a conservator or receiver for the
Custodian by the appropriate banking regulatory agency or upon the
happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Trust shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board of the
Trust, the Custodian shall, upon termination, deliver to such
successor custodian at the office of the Custodian, duly endorsed
and in the form for transfer, all securities then held by it
hereunder for each Fund and shall transfer to separate accounts of
the successor custodian all of each Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote
of the Board of the Trust, deliver at the office of the Custodian
and transfer such securities, funds and other properties in
accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the Board shall have been
delivered to the Custodian on or before the date when such
termination shall become effective, then the Custodian shall have
the right to deliver to a bank or trust company, which is a "bank"
as defined in the 1940 Act, (delete "doing business ...
Massachusetts" unless SSBT is the Custodian) doing business in
Boston, Massachusetts, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last
published report, of not less than $100,000,000, all securities,
funds and other properties held by the Custodian and all
instruments held by the Custodian relative thereto and all other
property held by it under this Contract for each Fund and to
transfer to separate accounts of such successor custodian all of
each Fund's securities held in any Securities System. Thereafter,
such bank or trust company shall be the successor of the Custodian
under this Contract.
In the event that securities, funds and other properties remain in
the possession of the Custodian after the date of termination
hereof owing to failure of the Trust to procure the certified copy
of the vote referred to or of the Board to appoint a successor
custodian, the Custodian shall be entitled to fair compensation
for its services during such period as the Custodian retains
possession of such securities, funds and other properties and the
provisions of this Contract relating to the duties and obligations
of the Custodian shall remain in full force and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the Custodian
and the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Contract
as may in their joint opinion be consistent with the general tenor
of this Contract. Any such interpretive or additional provisions
shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or state
regulations or any provision of the Declaration of Trust/Articles
of Incorporation. No interpretive or additional provisions made
as provided in the preceding sentence shall be deemed to be an
amendment of this Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions thereof
interpreted under and in accordance with laws of The Commonwealth
of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices and
other writings delivered or mailed postage prepaid to the Trust at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779,
or to the Custodian at address for SSBT only: 225 Franklin
Street, Boston, Massachusetts, 02110, or to such other address as
the Trust or the Custodian may hereafter specify, shall be deemed
to have been properly delivered or given hereunder to the
respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust
of those Trusts which are business trusts and agrees that the
obligations and liabilities assumed by the Trust and any Fund
pursuant to this Contract, including, without limitation, any
obligation or liability to indemnify the Custodian pursuant to
Section 8 hereof, shall be limited in any case to the relevant
Fund and its assets and that the Custodian shall not seek
satisfaction of any such obligation from the shareholders of the
relevant Fund, from any other Fund or its shareholders or from the
Trustees, Officers, employees or agents of the Trust, or any of
them. In addition, in connection with the discharge and
satisfaction of any claim made by the Custodian against the Trust,
for whatever reasons, involving more than one Fund, the Trust
shall have the exclusive right to determine the appropriate
allocations of liability for any such claim between or among the
Funds.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed effective as of the 1st day of
December, 1993.
ATTEST: INVESTMENT COMPANIES
/s/John G. McGonigle_________ By /s/John G. Donahue_____________
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie______________ By /s/ F. J. Sidoti,
Jr._________________
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber______ By /s/ James J. Dolan________________
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
<TABLE>
<S> <C>
CONTRACT
DATE INVESTMENT COMPANY
12/1/93 Government Income Securities, Inc.
</TABLE>
Exhibit 9 (i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as of this 1st
day of March, 1994, by the Boards of Directors or Trustees, as
applicable (the "Boards"), of those investment companies listed on
Exhibit 1 hereto as may be amended from time to time, having their
principal office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 (individually referred to herein as a "Fund"
and collectively as "Funds").
1. This Plan is adopted to allow the Funds to make payments as
contemplated herein to obtain certain personal services for shareholders
and/or the maintenance of shareholder accounts ("Services").
2. This Plan is designed to compensate Federated Shareholder
Services ("FSS") for providing personal services and/or the maintenance
of shareholder accounts to the Funds and their shareholders. In
compensation for the services provided pursuant to this Plan, FSS may be
paid a monthly fee computed at the annual rate not to exceed .25 of 1%
of the average aggregate net asset value of the shares of each Fund held
during the month.
3. Any payments made by the Funds to FSS pursuant to this Plan
will be made pursuant to a "Shareholder Services Agreement" between FSS
and each of the Funds.
4. Quarterly in each year that this Plan remains in effect, FSS
shall prepare and furnish to the Boards of the Funds, and the Boards
shall review, a written report of the amounts expended under the Plan.
5. This Plan shall become effective with regard to each Fund
(i) after approval by majority votes of: (a) such Fund's Board; and (b)
the members of the Board of such Fund who are not interested persons of
such Fund and have no direct or indirect financial interest in the
operation of such Fund's Plan or in any related documents to the Plan
("Independent Trustees or Directors"), cast in person at a meeting
called for the purpose of voting on the Plan.
6. This Plan shall remain in effect with respect to each Fund
presently set forth on an exhibit and any subsequent Fund added pursuant
to an exhibit during the initial year of this Plan for the period of one
year from the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Fund at least annually by a
majority of the relevant Fund's Board and a majority of the Independent
Trustees or
Directors, of such Fund as applicable, cast in person at a meeting
called for the purpose of voting on the renewal of such Plan. If this
Plan is adopted with respect to a fund after the first annual approval
by the Trustees or Directors as described above, this Plan will be
effective as to that Fund at such time as Exhibit 1 hereto is amended to
add such Fund and will continue in effect until the next annual approval
of this Plan by the Funds' Boards and thereafter for successive periods
of one year subject to approval as described above.
7. All material amendments to this Plan must be approved by a
vote of the Board of each Fund and of the Independent Directors or
Trustees of such Fund, cast in person at a meeting called for such
purpose.
8. This Plan may be terminated as follows:
(a) at any time, without the payment of any penalty, by
the vote of a majority of the Independent Board Members of any
Fund or by a vote of a majority of the outstanding voting
securities of any Fund as defined in the Investment Company Act
of 1940 on sixty (60) days' written notice to the parties to
this Agreement; or
(b) by any party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice
of its intention to terminate.
9. While this Plan shall be in effect, the selection and
nomination of Independent Directors or Trustees of each Fund shall be
committed to the discretion of the Independent Directors or Trustees
then in office.
10. All agreements with any person relating to the
implementation of this Plan shall be in writing and any agreement
related to this Plan shall be subject to termination, without penalty,
pursuant to the provisions of Paragraph 8 herein.
11. This Plan shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
Witness the due execution hereof this as of the date set forth
above.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
Exhibit 1
Government Income Securities, Inc.
Exhibit 9 (ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES SUB-CONTRACT
This Agreement is made between the Financial Institution executing
this Agreement ("Provider") and Federated Shareholder Services ("FSS")
on behalf of the investment companies listed in Exhibit A hereto (the
"Funds"), for whom FSS administers the Shareholder Services Plan
("Plan") and who have approved this form of Agreement. In consideration
of the mutual covenants hereinafter contained, it is hereby agreed by
and between the parties hereto as follows:
1. FSS hereby appoints Provider to render or cause to be
rendered personal services to shareholders of the Funds and/or the
maintenance of accounts of shareholders of the Funds ("Services").
Provider agrees to provide Services which, in its best judgment, are
necessary or desirable for its customers who are investors in the Funds.
Provider further agrees to provide FSS, upon request, a written
description of the Services which Provider is providing hereunder.
2. During the term of this Agreement, the Funds will pay the
Provider fees as set forth in a written schedule delivered to the
Provider pursuant to this Agreement. The fee schedule for Provider may
be changed by FSS sending a new fee schedule to Provider pursuant to
Paragraph 9 of this Agreement. For the payment period in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration of the fee on the basis of the number of days that this
Agreement is in effect during the quarter. To enable the Funds to
comply with an applicable exemptive order, Provider represents that the
fees received pursuant to this Agreement will be disclosed to its
customers, will be authorized by its customers, and will not result in
an excessive fee to the Provider.
3. The Provider understands that the Department of Labor views
ERISA as prohibiting fiduciaries of discretionary ERISA assets from
receiving shareholder service fees or other compensation from funds in
which the fiduciary's discretionary ERISA assets are invested. To date,
the Department of Labor has not issued any exemptive order or advisory
opinion that would exempt fiduciaries from this interpretation. Without
specific authorization from the Department of Labor, fiduciaries should
carefully avoid investing discretionary assets in any fund pursuant to
an arrangement where the fiduciary is to be compensated by the fund for
such investment. Receipt of such compensation could violate ERISA
provisions against fiduciary self-dealing and conflict of interest and
could subject the fiduciary to substantial penalties.
4. The Provider agrees not to solicit or cause to be solicited
directly, or indirectly at any time in the future, any proxies from the
shareholders of a Fund in opposition to proxies solicited by management
of the Fund, unless a court of competent jurisdiction shall have
determined that the conduct of a majority of the Board of Trustees or
Directors of the Fund constitutes willful misfeasance, bad faith, gross
negligence or reckless disregard of their duties. This paragraph 4 will
survive the term of this Agreement.
5. This Agreement shall continue in effect for one year from
the date of its execution, and thereafter for successive periods of one
year if the form of this Agreement is approved at least annually by the
Board of each Fund, including a majority of the members of the Board of
the Fund who are not interested persons of the Fund and have no direct
or indirect financial interest in the operation of the Fund's Plan or in
any related documents to the Plan ("Disinterested Board Members") cast
in person at a meeting called for that purpose.
6. Notwithstanding paragraph 5, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any penalty, by
the vote of a majority of the Disinterested Board Members of the
Fund or by a vote of a majority of the outstanding voting
securities of the Fund as defined in the Investment Company Act
of 1940 on not more than sixty (60) days' written notice to the
parties to this Agreement;
(b) automatically in the event of the Agreement's
assignment as defined in the Investment Company Act of 1940; and
(c) by either party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice
of its intention to terminate.
7. The Provider agrees to obtain any taxpayer identification
number certification from its customers required under Section 3406 of
the Internal Revenue Code, and any applicable Treasury regulations, and
to provide the Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number certification in
order to enable the implementation of any required backup withholding.
8. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized officer of
FSS, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of
them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or shareholders of FSS, but bind only the trust
property of FSS as provided in the Declaration of Trust of FSS.
9. Notices of any kind to be given hereunder shall be in
writing (including facsimile communication) and shall be duly given if
delivered to Provider at the address set forth below and if delivered to
FSS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
10. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of Sections 5
and 6, hereof, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
shall be governed by Pennsylvania law; provided, however, that nothing
herein shall be construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
11. This Agreement may be executed by different parties on
separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together
constitute one and the same instrument.
12. This Agreement shall not be assigned by any party without
the prior written consent of FSS in the case of assignment by Provider,
or of Provider in the case of assignment by FSS, except that any party
may assign to a successor all of or a substantial portion of its
business to a party controlling, controlled by, or under common control
with such party.
13. This Agreement may be amended by FSS from time to time by
the following procedure. FSS will mail a copy of the amendment to the
Provider's address, as shown below. If the Provider does not object to
the amendment within thirty (30) days after its receipt, the amendment
will become part of the Agreement. The Provider's objection must be in
writing and be received by FSS within such thirty days.
14. This Agreement may be terminated with regard to a
particular Fund or Class at any time, without the payment of any
penalty, by FSS or by the vote of a majority of the Disinterested
Trustees or Directors, as applicable, or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to the Provider. This
Agreement may be terminated by Provider on sixty (60) days' written
notice to FSS.
15. The Provider acknowledges and agrees that FSS has entered
into this Agreement solely in the capacity of agent for the Funds and
administrator of the Plan. The Provider agrees not to claim that FSS is
liable for any responsibilities or amounts due by the Funds hereunder.
[Provider]
Address
City State Zip Code
Dated: By:
Authoried Signature
Title
Print Name of Authorized Signature
FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Vice President
EXHIBIT A to Shareholder Services Sub-Contract with
Funds covered by this Agreement:
Government Income Securities, Inc.
Shareholder Service Fees
1. During the term of this Agreement, FSS will pay Provider a
quarterly fee. This fee will be computed at the annual rate of ______
of the average net asset value of shares of the Funds held during the
quarter in accounts for which the Provider provides Services under this
Agreement, so long as the average net asset value of Shares in the Funds
during the quarter equals or exceeds such minimum amount as FSS shall
from time to time determine and communicate in writing to the Provider.
2. For the quarterly period in which the Agreement becomes
effective or terminates, there shall be an appropriate proration of any
fee payable on the basis of the number of days that the Agreement is in
effect during the quarter.
Exhibit 9 (iii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of the first day of March, 1994, by and between
those investment companies listed on Exhibit 1, as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 and who have
approved a Shareholder Services Plan (the "Plan") and this form of
Agreement (individually referred to herein as a "Fund" and collectively
as "Funds") and Federated Shareholder Services, a Delaware business
trust, having its principal office and place of business at Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to be
rendered personal services to shareholders of the Funds and/or the
maintenance of accounts of shareholders of the Funds ("Services"). In
addition to providing Services directly to shareholders of the Funds,
FSS is hereby appointed the Funds' agent to select, negotiate and
subcontract for the performance of Services. FSS hereby accepts such
appointments. FSS agrees to provide or cause to be provided Services
which, in its best judgment (subject to supervision and control of the
Funds' Boards of Trustees or Directors, as applicable), are necessary or
desirable for shareholders of the Funds. FSS further agrees to provide
the Funds, upon request, a written description of the Services which FSS
is providing hereunder.
2. During the term of this Agreement, each Fund will pay FSS
and FSS agrees to accept as full compensation for its services rendered
hereunder a fee at an annual rate, calculated daily and payable monthly,
up to 0.25% of 1% of average net assets of each Fund.
For the payment period in which this Agreement becomes effective
or terminates with respect to any Fund, there shall be an appropriate
proration of the monthly fee on the basis of the number of days that
this Agreement is in effect with respect to such Fund during the month.
To enable the Funds to comply with an applicable exemptive order, FSS
represents that the fees received pursuant to this Agreement will be
disclosed to and authorized by any person or entity receiving Services,
and will not result in an excessive fee to FSS.
3. This Agreement shall continue in effect for one year from
the date of its execution, and thereafter for successive periods of one
year only if the form of this Agreement is approved at least annually by
the Board of each Fund, including a majority of the members of the Board
of the Fund who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of the Funds'
Plan or in any related documents to the Plan ("Independent Board
Members") cast in person at a meeting called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any penalty, by
the vote of a majority of the Independent Board Members of any
Fund or by a vote of a majority of the outstanding voting
securities of any Fund as defined in the Investment Company Act
of 1940 on sixty (60) days' written notice to the parties to
this Agreement;
(b) automatically in the event of the Agreement's
assignment as defined in the Investment Company Act of 1940; and
(c) by any party to the Agreement without cause by
giving the other party at least sixty (60) days' written notice
of its intention to terminate.
5. FSS agrees to obtain any taxpayer identification number
certification from each shareholder of the Funds to which it provides
Services that is required under Section 3406 of the Internal Revenue
Code, and any applicable Treasury regulations, and to provide each Fund
or its designee with timely written notice of any failure to obtain such
taxpayer identification number certification in order to enable the
implementation of any required backup withholding.
6. FSS shall not be liable for any error of judgment or mistake
of law or for any loss suffered by any Fund in connection with the
matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. FSS shall be entitled to
rely on and may act upon advice of counsel (who may be counsel for such
Fund) on all matters, and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. Any person, even
though also an officer, trustee, partner, employee or agent of FSS, who
may be or become a member of such Fund's Board, officer, employee or
agent of any Fund, shall be deemed, when rendering services to such Fund
or acting on any business of such Fund (other than services or business
in connection with the duties of FSS hereunder) to be rendering such
services to or acting solely for such Fund and not as an officer,
trustee, partner, employee or agent or one under the control or
direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this Agreement.
7. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.
8. FSS is expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of each Fund that is
a Massachusetts business trust and agrees that the obligations assumed
by each such Fund pursuant to this Agreement shall be limited in any
case to such Fund and its assets and that FSS shall not seek
satisfaction of any such obligations from the shareholders of such Fund,
the Trustees, Officers, Employees or Agents of such Fund, or any of
them.
9. The execution and delivery of this Agreement have been
authorized by the Trustees of FSS and signed by an authorized officer of
FSS, acting as such, and neither such authorization by such Trustees nor
such execution and delivery by such officer shall be deemed to have been
made by any of them individually or to impose any liability on any of
them personally, and the obligations of this Agreement are not binding
upon any of the Trustees or shareholders of FSS, but bind only the trust
property of FSS as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be in
writing (including facsimile communication) and shall be duly given if
delivered to any Fund and to such Fund at the following address:
Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President and if delivered to FSS at Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President.
11. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of Sections 3
and 4, hereof, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
shall be governed by Pennsylvania law; provided, however, that nothing
herein shall be construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
12. This Agreement may be executed by different parties on
separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together
constitute one and the same instrument.
13. This Agreement shall not be assigned by any party without
the prior written consent of FSS in the case of assignment by any Fund,
or of the Funds in the case of assignment by FSS, except that any party
may assign to a successor all of or a substantial portion of its
business to a party controlling, controlled by, or under common control
with such party. Nothing in this Section 14 shall prevent FSS from
delegating its responsibilities to another entity to the extent provided
herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
Exhibit 9 (iv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this first
day of March, 1994, between those investment companies listed on Exhibit
1, as may be amended from time to time, having their principal office
and place of business at Federated Investors Tower, Pittsburgh PA 15222-
3779 (individually referred to herein as "Fund" and collectively
referred to as "Funds), on behalf of the portfolios of the Funds, and
Federated Administrative Services, a Delaware business trust (herein
called "FAS").
WHEREAS, the Funds desire to retain FAS as their Administrator to
provide them with Administrative Services (as herein defined), and FAS
is willing to render such services;
WHEREAS, the Funds are registered as open-end management
investment companies under the Investment Company Act of 1940, as
amended (the "1940 Act"), with authorized and issued shares of capital
stock or beneficial interest ("Shares"); and
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Funds hereby appoint FAS
as Administrator of the Funds on the terms and conditions set forth in
this Agreement; and FAS hereby accepts such appointment and agrees to
perform the services and duties set forth in Section 2 of this Agreement
in consideration of the compensation provided for in Section 4 hereof.
2. Services and Duties. As Administrator, and subject to the
supervision and control of the Funds' Boards of Trustees or Directors,
as applicable (the "Boards"), FAS will provide facilities, equipment,
and personnel to carry out the following administrative services for
operation of the business and affairs of the Funds and each of their
portfolios:
(a) prepare, file, and maintain the
Funds' governing documents and any amendments thereto,
including the Declaration of Trust or Articles of
Incorporation, as appropriate,(which has already been
prepared and filed), the By-laws and minutes of meetings of
their Boards, Committees, and shareholders;
(b) prepare and file with the
Securities and Exchange Commission and the appropriate
state securities authorities the registration statements
for the Funds and the Funds' shares and all amendments
thereto, reports to regulatory authorities and
shareholders, prospectuses, proxy statements, and such
other documents all as may be necessary to enable the Funds
to make continuous offerings of their shares, as
applicable;
(c) prepare, negotiate, and
administer contracts on behalf of the Funds with, among
others, each Fund's investment adviser, distributor,
custodian, and transfer agent, subject to any applicable
restrictions of the Boards or the 1940 Act;
(d) supervise the Funds' custodians
in the maintenance of the Funds' general ledgers and in the
preparation of the Funds' financial statements, including
oversight of expense accruals and payments, the
determination of the net asset value of the Funds and the
declaration and payment of dividends and other
distributions to shareholders;
(e) calculate performance data of the
Funds for dissemination to information services covering
the investment company industry;
(f) prepare and file the Funds' tax
returns;
(g) examine and review the operations
of the Funds' custodians and transfer agents;
(h) coordinate the layout and
printing of publicly disseminated prospectuses and reports;
(i) perform internal audit
examinations in accordance with a charter to be adopted by
FAS and the Funds;
(j) assist with the design,
development, and operation of the Funds;
(k) provide individuals reasonably
acceptable to the Funds' Boards for nomination,
appointment, or election as officers of the Funds, who will
be responsible for the management of certain of the Funds'
affairs as determined by the Funds' Boards; and
(l) consult with the Funds and their
Boards of Trustees or Directors, as appropriate, on matters
concerning the Funds and their affairs.
The foregoing, along with any additional services that FAS shall
agree in writing to perform for the Funds hereunder, shall hereafter be
referred to as "Administrative Services." Administrative Services shall
not include any duties, functions, or services to be performed for any
Fund by such Fund's investment adviser, distributor, custodian, transfer
agent, or shareholder service agent, pursuant to their respective
agreements with such Fund.
3. Expenses. FAS shall be responsible for expenses incurred
in providing office space, equipment, and personnel as may be necessary
or convenient to provide the Administrative Services to the Fund,
including the compensation of FAS employees who serve on the Funds'
Boards, or as officers of the Funds. Each Fund shall be responsible for
all other expenses incurred by FAS on behalf of such Fund, including
without limitation postage and courier expenses, printing expenses,
travel expenses, registration fees, filing fees, fees of outside counsel
and independent auditors, insurance premiums, fees payable to members of
such Fund's Board who are not FAS employees, and trade association dues.
4. Compensation. For the Administrative Services provided,
each Fund hereby agrees to pay and FAS hereby agrees to accept as full
compensation for its services rendered hereunder an administrative fee
at an annual rate, payable daily, as specified below, based upon the
total assets of all of the Funds:
Maximum Administrative Average Daily Net Assets
Fee of the Funds
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250
million
.075% on assets in excess of
$750 million
However, in no event shall the administrative fee received during
any year of this Agreement be less than, or be paid at a rate less than
would aggregate, $125,000, per individual Fund, with an additional
$30,000 for each class of shares added to any such Fund after the date
hereof.
5. Standard of Care.
(a) FAS shall not be liable for any
error of judgment or mistake of law or for any loss
suffered by any Fund in connection with the matters to
which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless
disregard by it of its obligations and duties under this
Agreement. FAS shall be entitled to rely on and may act
upon advice of counsel (who may be counsel for such Fund)
on all matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such advice.
Any person, even though also an officer, trustee, partner,
employee or agent of FAS, who may be or become a member of
such Fund's Board, officer, employee or agent of any Fund,
shall be deemed, when rendering services to such Fund or
acting on any business of such Fund (other than services or
business in connection with the duties of FAS hereunder) to
be rendering such services to or acting solely for such
Fund and not as an officer, trustee, partner, employee or
agent or one under the control or direction of FAS even
though paid by FAS.
(b) This Section 5 shall survive
termination of this Agreement.
6. Duration and Termination. The initial term of this
Agreement with respect to each Fund shall commence on the date hereof,
and extend for a period of one year, renewable annually by the approval
of the Board of Directors/Trustees of each Fund.
7. Amendment. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which an enforcement of the change,
waiver, discharge or termination is sought.
8. Limitations of Liability of Trustees or Officers,
Employees, Agents and Shareholders of the Funds. FAS is expressly put
on notice of the limitation of liability as set forth in the Declaration
of Trust of each Fund that is a Massachusetts business trust and agrees
that the obligations assumed by each such Fund pursuant to this
Agreement shall be limited in any case to such Fund and its assets and
that FAS shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or Agents
of such Fund, or any of them.
9. Limitations of Liability of Trustees and Shareholders of
FAS. The execution and delivery of this Agreement have been authorized
by the Trustees of FAS and signed by an authorized officer of FAS,
acting as such, and neither such authorization by such Trustees nor such
execution and delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon
any of the Trustees or shareholders of FAS, but bind only the trust
property of FAS as provided in the Declaration of Trust of FAS.
10. Notices. Notices of any kind to be given hereunder
shall be in writing (including facsimile communication) and shall be
duly given if delivered to any Fund at the following address: Federated
Investors Tower, Pittsburgh, PA 15222-3779, Attention: President and
if delivered to FAS at Federated Investors Tower, Pittsburgh, PA 15222-
3779, Attention: President.
11. Miscellaneous. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior agreement
with respect to the subject hereof whether oral or written. The
captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. If any provision of this
Agreement shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of Section 5,
hereof, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall
be governed by Pennsylvania law; provided, however, that nothing herein
shall be construed in a manner inconsistent with the Investment Company
Act of 1940 or any rule or regulation promulgated by the Securities and
Exchange Commission thereunder.
12. Counterparts. This Agreement may be executed by different
parties on separate counterparts, each of which, when so executed and
delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
13. Assignment; Successors. This Agreement shall not be assigned
by any party without the prior written consent of FAS, in the case of
assignment by any Fund, or of the Funds, in the case of assignment by
FAS, except that any party may assign to a successor all of or a
substantial portion of its business to a party controlling, controlled
by, or under common control with such party. Nothing in this Section 14
shall prevent FAS from delegating its responsibilities to another entity
to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be executed by their officers designated below as of the day and year
first above written.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Administrative Services
By: /s/ Edward C. Gonzales
Edward C. Gonzales
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Exhibit 9(v) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of December 1, 1994, by and between those
investment companies listed on Exhibit 1 as may be amended from time
to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on
behalf of the portfolios (individually referred to herein as a "Fund"
and collectively as "Funds") of the Trust, and FEDERATED SERVICES
COMPANY, a Delaware business trust, having its principal office and
place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), with authorized and issued shares of capital
stock or beneficial interest ("Shares"); and
WHEREAS, the Trust may desire to retain the Company to provide
certain pricing, accounting and recordkeeping services for each of the
Funds, including any classes of shares issued by any Fund ("Classes")
if so indicated on Exhibit 1, and the Company is willing to furnish
such services; and
WHEREAS, the Trust may desire to appoint the Company as its
transfer agent, dividend disbursing agent if so indicated on Exhibit
1, and agent in connection with certain other activities, and the
Company desires to accept such appointment; and
WHEREAS, the Trust may desire to appoint the Company as its agent
to select, negotiate and subcontract for custodian services from an
approved list of qualified banks if so indicated on Exhibit 1, and the
Company desires to accept such appointment; and
WHEREAS, from time to time the Trust may desire and may instruct
the Company to subcontract for the performance of certain of its
duties and responsibilities hereunder to State Street Bank and Trust
Company or another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual
covenants herein contained, and intending to be legally bound hereby,
the parties hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing
and accounting services to the Funds, and/or the Classes, for the
period and on the terms set forth in this Agreement. The Company
accepts such appointment and agrees to furnish the services herein set
forth in return for the compensation as provided in Article 3 of this
Section.
Article 2. The Company's Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust
with regard to fund accounting for the Trust, and/or the Funds, and/or
the Classes, and in connection therewith undertakes to perform the
following specific services;
A. Value the assets of the Funds using: primarily, market
quotations, including the use of matrix pricing, supplied by
the independent pricing services selected by the Company in
consultation with the adviser, or sources selected by the
adviser, and reviewed by the board; secondarily, if a
designated pricing service does not provide a price for a
security which the Company believes should be available by
market quotation, the Company may obtain a price by calling
brokers designated by the investment adviser of the fund
holding the security, or if the adviser does not supply the
names of such brokers, the Company will attempt on its own
to find brokers to price those securities; thirdly, for
securities for which no market price is available, the
Pricing Committee of the Board will determine a fair value
in good faith. Consistent with Rule 2a-4 of the 40 Act,
estimates may be used where necessary or appropriate. The
Company's obligations with regard to the prices received
from outside pricing services and designated brokers or
other outside sources, is to exercise reasonable care in the
supervision of the pricing agent. The Company is not the
guarantor of the securities prices received from such agents
and the Company is not liable to the Fund for potential
errors in valuing a Fund's assets or calculating the net
asset value per share of such Fund or Class when the
calculations are based upon such prices. All of the above
sources of prices used as described are deemed by the
Company to be authorized sources of security prices. The
Company provides daily to the adviser the securities prices
used in calculating the net asset value of the fund, for its
use in preparing exception reports for those prices on which
the adviser has comment. Further, upon receipt of the
exception reports generated by the adviser, the Company
diligently pursues communication regarding exception reports
with the designated pricing agents.
B. Determine the net asset value per share of each Fund and/or
Class, at the time and in the manner from time to time
determined by the Board and as set forth in the Prospectus
and Statement of Additional Information ("Prospectus") of
each Fund;
C. Calculate the net income of each of the Funds, if any;
D. Calculate capital gains or losses of each of the Funds
resulting from sale or disposition of assets, if any;
E. Maintain the general ledger and other accounts, books and
financial records of the Trust, including for each Fund,
and/or Class, as required under Section 31(a) of the 1940
Act and the Rules thereunder in connection with the services
provided by the Company;
F. Preserve for the periods prescribed by Rule 31a-2 under the
1940 Act the records to be maintained by Rule 31a-1 under
the 1940 Act in connection with the services provided by the
Company. The Company further agrees that all such records it
maintains for the Trust are the property of the Trust and
further agrees to surrender promptly to the Trust such
records upon the Trust's request;
G. At the request of the Trust, prepare various reports or
other financial documents required by federal, state and
other applicable laws and regulations; and
H. Such other similar services as may be reasonably requested
by the Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services
rendered pursuant to Section One of this Agreement in
accordance with the fees agreed upon from time to time
between the parties hereto. Such fees do not include out-of-
pocket disbursements of the Company for which the Funds
shall reimburse the Company upon receipt of a separate
invoice. Out-of-pocket disbursements shall include, but
shall not be limited to, the items agreed upon between the
parties from time to time.
B. The Fund and/or the Class, and not the Company, shall bear
the cost of: custodial expenses; membership dues in the
Investment Company Institute or any similar organization;
transfer agency expenses; investment advisory expenses;
costs of printing and mailing stock certificates,
Prospectuses, reports and notices; administrative expenses;
interest on borrowed money; brokerage commissions; taxes and
fees payable to federal, state and other governmental
agencies; fees of Trustees or Directors of the Trust;
independent auditors expenses; Federated Administrative
Services and/or Federated Administrative Services, Inc.
legal and audit department expenses billed to Federated
Services Company for work performed related to the Trust,
the Funds, or the Classes; law firm expenses; or other
expenses not specified in this Article 3 which may be
properly payable by the Funds and/or classes.
C. The compensation and out-of-pocket expenses shall be accrued
by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon
request of the Company. The Company will maintain detailed
information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
E. The fee for the period from the effective date of this
Agreement with respect to a Fund or a Class to the end of
the initial month shall be prorated according to the
proportion that such period bears to the full month period.
Upon any termination of this Agreement before the end of any
month, the fee for such period shall be prorated according
to the proportion which such period bears to the full month
period. For purposes of determining fees payable to the
Company, the value of the Fund's net assets shall be
computed at the time and in the manner specified in the
Fund's Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person
or persons as the Company may believe to be particularly
suited to assist it in performing services under this
Section One. Such person or persons may be third-party
service providers, or they may be officers and employees who
are employed by both the Company and the Funds. The
compensation of such person or persons shall be paid by the
Company and no obligation shall be incurred on behalf of the
Trust, the Funds, or the Classes in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement,
the Trust hereby appoints the Company to act as, and the Company
agrees to act as, transfer agent and dividend disbursing agent for
each Fund's Shares, and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic
investment plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the
Board shall have from time to time authorized. Each such writing shall
set forth the specific transaction or type of transaction involved.
Oral instructions will be deemed to be Proper Instructions if (a) the
Company reasonably believes them to have been given by a person
previously authorized in Proper Instructions to give such instructions
with respect to the transaction involved, and (b) the Trust, or the
Fund, and the Company promptly cause such oral instructions to be
confirmed in writing. Proper Instructions may include communications
effected directly between electro-mechanical or electronic devices
provided that the Trust, or the Fund, and the Company are satisfied
that such procedures afford adequate safeguards for the Fund's assets.
Proper Instructions may only be amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust
as to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the
purchase of shares and promptly deliver payment and
appropriate documentation therefore to the custodian of
the relevant Fund, (the "Custodian"). The Company shall
notify the Fund and the Custodian on a daily basis of
the total amount of orders and payments so delivered.
(2) Pursuant to purchase orders and in accordance with the
Fund's current Prospectus, the Company shall compute
and issue the appropriate number of Shares of each Fund
and/or Class and hold such Shares in the appropriate
Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder
or its agent requests a certificate, the Company, as
Transfer Agent, shall countersign and mail by first
class mail, a certificate to the Shareholder at its
address as set forth on the transfer books of the
Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the
purchase of Shares of the Fund and/or Class is returned
unpaid for any reason, the Company shall debit the
Share account of the Shareholder by the number of
Shares that had been credited to its account upon
receipt of the check or other order, promptly mail a
debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the
amount paid for such Shares exceeds proceeds of the
redemption of such Shares plus the amount of any
dividends paid with respect to such Shares, the Fund
and/the Class or its distributor will reimburse the
Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of
any distribution to Shareholders, the Company shall act
as Dividend Disbursing Agent for the Funds in
accordance with the provisions of its governing
document and the then-current Prospectus of the Fund.
The Company shall prepare and mail or credit income,
capital gain, or any other payments to Shareholders. As
the Dividend Disbursing Agent, the Company shall, on or
before the payment date of any such distribution,
notify the Custodian of the estimated amount required
to pay any portion of said distribution which is
payable in cash and request the Custodian to make
available sufficient funds for the cash amount to be
paid out. The Company shall reconcile the amounts so
requested and the amounts actually received with the
Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any
such distribution or dividend, appropriate credits
shall be made to the Shareholder's account, for
certificated Funds and/or Classes, delivered where
requested; and
(2) The Company shall maintain records of account for each
Fund and Class and advise the Trust, each Fund and
Class and its Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and
redemption directions and, if such redemption requests
comply with the procedures as may be described in the
Fund Prospectus or set forth in Proper Instructions,
deliver the appropriate instructions therefor to the
Custodian. The Company shall notify the Funds on a
daily basis of the total amount of redemption requests
processed and monies paid to the Company by the
Custodian for redemptions.
(2) At the appropriate time upon receiving redemption
proceeds from the Custodian with respect to any
redemption, the Company shall pay or cause to be paid
the redemption proceeds in the manner instructed by the
redeeming Shareholders, pursuant to procedures
described in the then-current Prospectus of the Fund.
(3) If any certificate returned for redemption or other
request for redemption does not comply with the
procedures for redemption approved by the Fund, the
Company shall promptly notify the Shareholder of such
fact, together with the reason therefor, and shall
effect such redemption at the price applicable to the
date and time of receipt of documents complying with
said procedures.
(4) The Company shall effect transfers of Shares by the
registered owners thereof.
(5) The Company shall identify and process abandoned
accounts and uncashed checks for state escheat
requirements on an annual basis and report such actions
to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each
Fund, and/or Class, and maintain pursuant to applicable
rules of the Securities and Exchange Commission ("SEC")
a record of the total number of Shares of the Fund
and/or Class which are authorized, based upon data
provided to it by the Fund, and issued and outstanding.
The Company shall also provide the Fund on a regular
basis or upon reasonable request with the total number
of Shares which are authorized and issued and
outstanding, but shall have no obligation when
recording the issuance of Shares, except as otherwise
set forth herein, to monitor the issuance of such
Shares or to take cognizance of any laws relating to
the issue or sale of such Shares, which functions shall
be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records
pursuant to applicable rules of the SEC relating to the
services to be performed hereunder in the form and
manner as agreed to by the Trust or the Fund to include
a record for each Shareholder's account of the
following:
(a) Name, address and tax identification number (and
whether such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account,
including dividends paid and date and price for all
transactions;
(d) Any stop or restraining order placed against the
account;
(e) Information with respect to withholding in the case
of a foreign account or an account for which
withholding is required by the Internal Revenue
Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any
Shareholder holding certificates;
(h) Any information required in order for the Company
to perform the calculations contemplated or
required by this Agreement.
(3) The Company shall preserve any such records required to
be maintained pursuant to the rules of the SEC for the
periods prescribed in said rules as specifically noted
below. Such record retention shall be at the expense of
the Company, and such records may be inspected by the
Fund at reasonable times. The Company may, at its
option at any time, and shall forthwith upon the Fund's
demand, turn over to the Fund and cease to retain in
the Company's files, records and documents created and
maintained by the Company pursuant to this Agreement,
which are no longer needed by the Company in
performance of its services or for its protection. If
not so turned over to the Fund, such records and
documents will be retained by the Company for six years
from the year of creation, during the first two of
which such documents will be in readily accessible
form. At the end of the six year period, such records
and documents will either be turned over to the Fund or
destroyed in accordance with Proper Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding
in each state for "blue sky" purposes as determined
according to Proper Instructions delivered from
time to time by the Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption
fees, or other transaction- or sales-related
payments;
(f) Such other information as may be agreed upon from
time to time.
(2) The Company shall prepare in the appropriate form, file
with the Internal Revenue Service and appropriate state
agencies, and, if required, mail to Shareholders, such
notices for reporting dividends and distributions paid
as are required to be so filed and mailed and shall
withhold such sums as are required to be withheld under
applicable federal and state income tax laws, rules and
regulations.
(3) In addition to and not in lieu of the services set
forth above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant,
agent in connection with accumulation, open-account
or similar plans (including without limitation any
periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining
all Shareholder accounts, mailing Shareholder
reports and Prospectuses to current Shareholders,
withholding taxes on accounts subject to back-up or
other withholding (including non-resident alien
accounts), preparing and filing reports on U.S.
Treasury Department Form 1099 and other appropriate
forms required with respect to dividends and
distributions by federal authorities for all
Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for
all purchases and redemptions of Shares and other
conformable transactions in Shareholder accounts,
preparing and mailing activity statements for
Shareholders, and providing Shareholder account
information; and
(b) provide a system which will enable the Fund to
monitor the total number of Shares of each Fund
and/or Class sold in each state ("blue sky
reporting"). The Fund shall by Proper Instructions
(i) identify to the Company those transactions and
assets to be treated as exempt from the blue sky
reporting for each state and (ii) verify the
classification of transactions for each state on
the system prior to activation and thereafter
monitor the daily activity for each state. The
responsibility of the Company for each Fund's
and/or Class's state blue sky registration status
is limited solely to the recording of the initial
classification of transactions or accounts with
regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as
provided above.
F. Other Duties
(1) The Company shall answer correspondence from
Shareholders relating to their Share accounts and such
other correspondence as may from time to time be
addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists,
mail proxy cards and other material supplied to it by
the Fund in connection with Shareholder Meetings of
each Fund; receive, examine and tabulate returned
proxies, and certify the vote of the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check
forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping
account of, such certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the
preparation, contents and distribution of their own and/or
their classes' Prospectus and for complying with all applicable
requirements of the Securities Act of 1933, as amended (the
"1933 Act"), the 1940 Act and any laws, rules and regulations
of government authorities having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share
certificates shall be properly signed, manually or by
facsimile, if authorized by the Trust and shall bear the seal
of the Trust or facsimile thereof; and notwithstanding the
death, resignation or removal of any officer of the Trust
authorized to sign certificates, the Company may continue to
countersign certificates which bear the manual or facsimile
signature of such officer until otherwise directed by the
Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration
of any dividend or distribution on account of any Fund's
shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company
an annual maintenance fee for each Shareholder account as
agreed upon between the parties and as may be added to or
amended from time to time. Such fees may be changed from time
to time subject to written agreement between the Trust and the
Company. Pursuant to information in the Fund Prospectus or
other information or instructions from the Fund, the Company
may sub-divide any Fund into Classes or other sub-components
for recordkeeping purposes. The Company will charge the Fund
the same fees for each such Class or sub-component the same as
if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items
agreed upon between the parties, as may be added to or amended
from time to time. In addition, any other expenses incurred by
the Company at the request or with the consent of the Trust
and/or the Fund, will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued
by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon
request of the Company. The Company will maintain detailed
information about the compensation and out-of-pocket
expenses by Fund and Class.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of the
other party.
A. This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors
and assigns.
B. The Company may without further consent on the part of the
Trust subcontract for the performance hereof with (A) State
Street Bank and its subsidiary, Boston Financial Data
Services, Inc., a Massachusetts Trust ("BFDS"), which is
duly registered as a transfer agent pursuant to
Section 17A(c)(1) of the Securities Exchange Act of 1934, as
amended, or any succeeding statute ("Section 17A(c)(1)"), or
(B) a BFDS subsidiary duly registered as a transfer agent
pursuant to Section 17A(c)(1), or (C) a BFDS affiliate, or
(D) such other provider of services duly registered as a
transfer agent under Section 17A(c)(1) as Company shall
select; provided, however, that the Company shall be as
fully responsible to the Trust for the acts and omissions of
any subcontractor as it is for its own acts and omissions;
or
C. The Company shall upon instruction from the Trust
subcontract for the performance hereof with an Agent
selected by the Trust, other than BFDS or a provider of
services selected by Company, as described in (2) above;
provided, however, that the Company shall in no way be
responsible to the Trust for the acts and omissions of the
Agent.
SECTION THREE: Custody Services Procurement.
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets
the criteria established in Section 17(f) of the 1940 Act and (ii) has
been approved by the Board as eligible for selection by the Company as
a custodian (the "Eligible Custodian"). The Company accepts such
appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
A. evaluate the nature and the quality of the custodial
services provided by the Eligible Custodian;
B. employ the Eligible Custodian to serve on behalf of the
Trust as Custodian of the Trust's assets substantially on
the terms set forth as the form of agreement in Exhibit 2;
C. negotiate and enter into agreements with the Custodians for
the benefit of the Trust, with the Trust as a party to each
such agreement. The Company shall not be a party to any
agreement with any such Custodian;
D. establish procedures to monitor the nature and the quality
of the services provided by the Custodians;
E. continuously monitor the nature and the quality of services
provided by the Custodians; and
F. periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature
and amount of disbursement made on account of the Trust with
respect to each custodial agreement; and (iii) such other
information as the Board shall reasonably request to enable
it to fulfill its duties and obligations under Sections
17(f) and 36(b) of the 1940 Act and other duties and
obligations thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three
of this Agreement, the Trust and/or the Fund agree to pay
the Company an annual fee as agreed upon between the
parties.
B. Reimbursements
In addition to the fee paid under Section 11A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items
agreed upon between the parties, as may be added to or amended
from time to time. In addition, any other expenses incurred by
the Company at the request or with the consent of the Trust
and/or the Fund, will be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued
by the Fund and shall be paid to the Company no less
frequently than monthly, and shall be paid daily upon
request of the Company. The Company will maintain detailed
information about the compensation and out-of-pocket
expenses by Fund.
D. Any schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a
duly authorized officer of the Trust and/or the Funds and a
duly authorized officer of the Company.
Article 12. Representations.
The Company represents and warrants that it has obtained all
required approvals from all government or regulatory authorities
necessary to enter into this arrangement and to provide the services
contemplated in Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the
following documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust
authorizing this Agreement;
(3) Specimens of all forms of outstanding Share
certificates of the Trust or the Funds in the forms
approved by the Board of the Trust with a certificate
of the Secretary of the Trust as to such approval;
(4) All account application forms and other documents
relating to Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing
the original issuance of each Fund's, and/or Class's
Shares;
(2) Each Registration Statement filed with the SEC and
amendments thereof and orders relating thereto in
effect with respect to the sale of Shares of any Fund,
and/or Class;
(3) A certified copy of each amendment to the governing
document and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian
and agents for fund accountant, custody services
procurement, and shareholder recordkeeping or transfer
agency services;
(5) Specimens of all new Share certificates representing
Shares of any Fund, accompanied by Board resolutions
approving such forms;
(6) Such other certificates, documents or opinions which
the Company may, in its discretion, deem necessary or
appropriate in the proper performance of its duties;
and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and
in good standing under the laws of the State of
Delaware.
(2) It is duly qualified to carry on its business in the
State of Delaware.
(3) It is empowered under applicable laws and by its
charter and by-laws to enter into and perform this
Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations
under this Agreement.
(5) It has and will continue to have access to the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
(6) It is in compliance with federal securities law
requirements and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing
and in good standing under the laws of its state of
organization;
(2) It is empowered under applicable laws and by its
Charter and By-Laws to enter into and perform its
obligations under this Agreement;
(3) All corporate proceedings required by said Charter and
By-Laws have been taken to authorize it to enter into
and perform its obligations under this Agreement;
(4) The Trust is an open-end investment company registered
under the 1940 Act; and
(5) A registration statement under the 1933 Act will be
effective, and appropriate state securities law filings
have been made and will continue to be made, with
respect to all Shares of each Fund being offered for
sale.
Article 15. Standard of Care and Indemnification.
A. Standard of Care
The Company shall be held to a standard of reasonable care in
carrying out the provisions of this Contract. The Company shall
be entitled to rely on and may act upon advice of counsel (who
may be counsel for the Trust) on all matters, and shall be
without liability for any action reasonably taken or omitted
pursuant to such advice, provided that such action is not in
violation of applicable federal or state laws or regulations,
and is in good faith and without negligence.
B. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and
affiliates, harmless against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributable to:
(1) The acts or omissions of any Custodian, Adviser, Sub-
adviser or other party contracted by or approved by the
Trust or Fund,
(2) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in
proper form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf
of the Fund, its Shareholders or investors
regarding the purchase, redemption or transfer of
Shares and Shareholder account information;
(b) are received by the Company from independent
pricing services or sources for use in valuing the
assets of the Funds; or
(c) are received by the Company or its agents or
subcontractors from Advisers, Sub-advisers or other
third parties contracted by or approved by the
Trust of Fund for use in the performance of
services under this Agreement;
(d) have been prepared and/or maintained by the Fund or
its affiliates or any other person or firm on
behalf of the Trust.
(3) The reliance on, or the carrying out by the Company or
its agents or subcontractors of Proper Instructions of
the Trust or the Fund.
(4) The offer or sale of Shares in violation of any
requirement under the federal securities laws or
regulations or the securities laws or regulations of
any state that such Shares be registered in such state
or in violation of any stop order or other
determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares
in such state.
Provided, however, that the Company shall not be
protected by this Article 15.A. from liability for any
act or omission resulting from the Company's willful
misfeasance, bad faith, negligence or reckless disregard
of its duties of failure to meet the standard of care set
forth in 15.A. above.
C. Reliance
At any time the Company may apply to any officer of the Trust
or Fund for instructions, and may consult with legal counsel
with respect to any matter arising in connection with the
services to be performed by the Company under this Agreement,
and the Company and its agents or subcontractors shall not be
liable and shall be indemnified by the Trust or the appropriate
Fund for any action reasonably taken or omitted by it in
reliance upon such instructions or upon the opinion of such
counsel provided such action is not in violation of applicable
federal or state laws or regulations. The Company, its agents
and subcontractors shall be protected and indemnified in
recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of the officers
of the Trust or the Fund, and the proper countersignature of
any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party
of such assertion, and shall keep the other party advised with
respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to
participate with the party seeking indemnification in the
defense of such claim. The party seeking indemnification shall
in no case confess any claim or make any compromise in any case
in which the other party may be required to indemnify it except
with the other party's prior written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust
exercise its rights to terminate, all out-of-pocket expenses
associated with the movement of records and materials will be borne by
the Trust or the appropriate Fund. Additionally, the Company reserves
the right to charge for any other reasonable expenses associated with
such termination. The provisions of Article 15 shall survive the
termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions interpretive
of or in addition to the provisions of this Agreement as may in their
joint opinion be consistent with the general tenor of this Agreement.
Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no
such interpretive or additional provisions shall contravene any
applicable federal or state regulations or any provision of the
Charter. No interpretive or additional provisions made as provided in
the preceding sentence shall be deemed to be an amendment of this
Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at Federated
Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or to the
Company at Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-
3779, or to such other address as the Trust or the Company may
hereafter specify, shall be deemed to have been properly delivered or
given hereunder to the respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an authorized officer of
the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees or Shareholders of
the Trust, but bind only the appropriate property of the Fund, or
Class, as provided in the Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Company and signed by an authorized officer of
the Company, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose any
liability on any of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees or Shareholders of
the Company, but bind only the property of the Company as provided in
the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other
party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject
hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to such
successor agent at the office of the Company all properties of the
Trust held by it hereunder. If no such successor agent shall be
appointed, the Company shall at its office upon receipt of Proper
Instructions deliver such properties in accordance with such
instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or
before the date when such termination shall become effective, then the
Company shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the 1940 Act, of its own selection,
having an aggregate capital, surplus, and undivided profits, as shown
by its last published report, of not less than $2,000,000, all
properties held by the Company under this Agreement. Thereafter, such
bank or trust company shall be the successor of the Company under this
Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a result
of work stoppage, power or other mechanical failure, natural disaster,
governmental action, communication disruption or other impossibility
of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that either party may
assign to a successor all of or a substantial portion of its business,
or to a party controlling, controlled by, or under common control with
such party. Nothing in this Article 28 shall prevent the Company from
delegating its responsibilities to another entity to the extent
provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void
or unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in their names and on their behalf under their seals by
and through their duly authorized officers, as of the day and year
first above written.
ATTEST: INVESTMENT COMPANIES
(listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
<TABLE>
<S> <C>
CONTRACT
DATE INVESTMENT COMPANY
Portfolios
Classes
12/1/94 GOVERNMENT INCOME SECURITIES, INC.
Please delete the extra blank lines and any instructions displayed in
red.
FEDERATED SERVICES COMPANY provides the following services:
Fund Accounting
Shareholder Recordkeeping
Custody Services Procurement
</TABLE>
Exhibit 10 under Form N-1A
Exhibit 5 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR. __________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
(1914 - 1971)
March 8, 1982
The Trustees of
Money Market Instruments Trust
421 Seventh Avenue
Pittsburgh, PA 15219
Gentlemen:
Money Market Instruments Trust ("Trust") proposes to offer and
sell Shares of Beneficial Interest ("Shares") in the manner and on the
terms set forth in its Registration Statement filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
As counsel we have participated in the organization of the Trust,
its registration under the Investment Company Act of 1940 and the
preparation and filing of its Registration Statement under the
Securities Act of 1933. We have examined and are familiar with the
provisions of the written Declaration of Trust dated November 19, 1981,
("Declaration of Trust"), the Bylaws of the Trust and such other
documents and records deemed relevant. We have also reviewed questions
of law and consulted with counsel thereon as deemed necessary or
appropriate by us for the purposes of this opinion.
Based upon the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing pursuant to
the Declaration of Trust.
2. The Shares which are currently being registered by the
amended Registration Statement referred to above may be legally and
validly issued from time to time in accordance with the Declaration of
Trust upon receipt of consideration sufficient to comply with the
provisions of Article III, Section 3, of the Declaration of Trust and
subject to compliance with the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and applicable state laws
regulating the sale of securities. Such Shares, when so issued, will be
fully paid and non-assessable.
We consent to your filing this opinion as an exhibit to the
amended Registration Statement referred to above and to any application
or registration statement filed under the securities laws of any of the
States of the United States. We further consent to the reference to our
firm under the caption "Legal Counsel and Accountants" in the prospectus
filed as a part of such amended Registration Statement, applications and
registration statements.
Very truly yours,
HOUSTON, HOUSTON, & DONNELLY
By: /s/ Thomas J. Donnelly
heh
Exhibit 13 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
FIDUCIARY CORP. III
Federated Investors Building
421 Seventh Avenue
Pittsburgh, Pennsylvania 15219
412-288-1900
February 2, 1982
MONEY MARKET INSTRUMENTS TRUST
Federated Investors Building
421 Seventh Avenue
Pittsburgh, Pennsylvania 15219
Dear Sirs:
The initial $100,000 investment by Fiduciary Corp. III in MONEY
MARKET INSTRUMENTS TRUST will not be redeemed while any organizational
expenses remain unamortized unless the proceeds of any redemption of
that initial investment is reduced by its pro rata portion of any
unamortized organizational expenses. These shares are purchased for
investment purposes, and Fiduciary Corp. III has no present intention of
selling or publicly distributing these shares.
Very truly yours,
/s/ David A. Dilger
David A. Dilger
DAD:tm Vie President and Secretary
/s/JAD
EXHIBIT 16
Under Form N-1A
FUND NAME: GOVERNMENT INCOME SECURITIES, INC.
COMPUTATION OF YIELD
AS OF: FEBRUARY 28, 1989
<TABLE>
<CAPTION>
<S> <C>
Dividend and\or Interest Income for the 30 Days
Ended FEBRUARY 28, 1989 $12,080,714.00
----------------
Net Expenses for the Period $1,045,366.00
----------------
Average Daily Shares Outstanding and Entitled to Receive
Dividends 167,008,701.000
----------------
Maxium Offering Price Per Share as of FEBRUARY 28, 1989 $9.09
----------------
Undistributed Net Income $0.0520
----------------
YIELD = 2[($12,080,714.00 - $1,045,366.00) + 1) 6-1] =
167,008,701.000 * ($9.09 - 0.052) 0.94%
================
</TABLE>
DECLARED: MONTHLY Scehdule for Computation
PAID: MONTHLY of Fund Performance Data
Average Total Return
FUND: GOVERNMENT INCOME & SECURITIES, INC.
Performance ONE YEAR ending 2-28-89
FYE: FEBRAURY 28
ONE YEAR Ending 2-28-89
Initial Investment of: $1,000.00 on 2-29-88
Offering Price/Share= $9.59
NAV= $9.49
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Begin Capital Reinvest Ending Total
Reinvest Period Dividend Gain Price Period Ending Invest
Dates Shares /Share /Share /Share Shares Price Value
2/29/88 104.275 0.000000000 0.00000 $9.49 104.275 $9.49 $989.57
3/31/88 104.275 0.072702366 0.00000 $9.39 105.083 $9.39 $986.73
4/30/88 105.083 0.072273874 0.00000 $9.30 105.889 $9.30 $984.86
5/31/88 105.889 0.072323023 0.00000 $9.20 106.732 $9.20 $981.93
6/30/88 106.732 0.072259551 0.00000 $9.30 107.561 $9.30 $1,000.32
7/5/88 107.561 0.0115 0.00000 $9.30 107.694 $9.30 $1,001.55
8/5/88 107.694 0.0723 0.00000 $9.22 108.539 $9.22 $1,000.73
9/2/88 108.539 0.0720 0.00000 $9.20 109.388 $9.20 $1,006.77
10/5/88 109.388 0.0890 0.00000 $9.23 110.443 $9.23 $1,019.00
11/4/88 110.443 0.0720 0.00000 $9.24 111.303 $9.24 $1,028.44
12/5/88 111.303 0.0720 0.00000 $9.11 112.183 $9.11 $1,021.99
12/30/88 112.183 0.0440 0.00000 $9.05 112.728 $9.05 $1,020.19
1/6/89 112.728 0.0280 0.00000 $8.99 113.080 $8.99 $1,016.59
2/6/89 113.080 0.0710 0.00000 $9.08 113.964 $9.08 $1,034.75
2/28/89 113.964 0.0000 0.00000 $9.00 113.964 $8.93 $1,017.70
</TABLE>
$1,000 (1+T) Ending Redeemable Value
T = 1.75%
[(1+T)1/12]12 = Average Annual Total Return (A)
AA = 1.75%
DECLARED: MONTHLY Scehdule for Computation
PAID: MONTHLY of Fund Performance Data
Average Total Return
FUND: GOVERNMENT INCOME & SECURITIES, INC.
Performance SINCE INCEPTION ending 2-28-89
FYE: FEBRUARY 28
ONE YEAR Ending 2-28-89
Initial Investment of: $1,000.00 on 4-6-86
Offering Price/Share = $10.07
NAV= $9.97
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Begin Capital Reinvest Ending Total
Reinvest Period Dividend Gain Price Period Ending Invest
Dates Shares /Share /Share /Share Shares Price Value
4/6/86 99.298 0.0000 0.00000 $9.97 99.298 $9.97 $990.00
5/7/86 99.298 0.0860 0.00000 $9.84 100.166 $9.84 $985.63
5/31/86 100.166 0.084452265 0.00000 $9.72 101.036 $9.72 $982.07
6/30/86 101.036 0.081569643 0.00000 $9.62 101.894 $9.62 $980.22
7/31/86 101.894 0.077014567 0.00000 $9.72 102.701 $9.72 $998.26
8/30/86 102.701 0.076916863 0.00000 $9.76 103.511 $9.76 $1,010.27
9/30/86 103.511 0.073840854 0.00000 $9.74 104.296 $9.74 $1,015.84
10/31/86 104.296 0.073699680 0.00000 $9.76 105.083 $9.76 $1,025.61
11/30/86 105.083 0.073818673 0.00000 $9.76 105.878 $9.76 $1,033.37
12/31/86 105.878 0.073620687 0.00000 $9.76 106.676 $9.76 $1,041.16
1/31/87 106.676 0.073957990 0.00000 $9.75 107.486 $9.75 $1,047.99
2/28/87 107.486 0.073591604 0.00000 $9.76 108.296 $9.76 $1,056.97
3/31/87 108.296 0.073136614 0.00000 $9.70 109.113 $9.70 $1,058.39
4/30/87 109.113 0.072091347 0.00000 $9.45 109.915 $9.45 $1,038.98
5/31/87 109.915 0.071993105 0.00000 $9.38 110.789 $9.38 $1,039.20
6/30/87 110.789 0.072871059 0.00000 $9.45 111.643 $9.45 $1,055.03
7/31/87 111.643 0.071668342 0.00000 $9.42 112.493 $9.42 $1,059.68
8/31/87 112.493 0.072742521 0.00000 $9.36 113.367 $9.36 $1,061.11
9/30/87 113.367 0.073939500 0.00000 $9.07 114.291 $9.07 $1,036.62
10/31/87 114.291 0.075228864 0.00000 $9.19 115.227 $9.19 $1,058.93
11/30/87 115.227 0.074826651 0.00000 $9.26 116.158 $9.26 $1,075.62
12/31/87 116.158 0.074504286 0.00000 $9.26 117.092 $9.26 $1,084.27
1/31/88 117.092 0.075470316 0.00000 $9.47 118.025 $9.47 $1,117.70
2/29/88 118.025 0.074454845 0.00000 $9.49 118.951 $9.49 $1,128.85
3/31/88 118.951 0.072702366 0.00000 $9.39 119.872 $9.39 $1,125.60
4/30/88 119.872 0.072273874 0.00000 $9.30 120.804 $9.30 $1,123.48
5/31/88 120.804 0.072323923 0.00000 $9.20 121.754 $9.20 $1,120.13
6/30/88 121.754 0.072259551 0.00000 $9.30 122.700 $9.30 $1,141.11
7/5/88 122.700 0.0115 0.00000 $9.30 122.851 $9.30 $1,142.52
8/5/88 122.851 0.0723 0.00000 $9.22 123.815 $9.22 $1,141.57
9/2/88 123.815 0.0720 0.00000 $9.20 124.784 $9.20 $1,148.01
10/5/88 124.784 0.0890 0.00000 $9.23 125.987 $9.23 $1,162.86
11/4/88 125.987 0.0720 0.00000 $9.24 126.969 $9.24 $1,173.19
12/5/88 126.969 0.0720 0.00000 $9.11 127.972 $9.11 $1,165.83
12/30/88 127.972 0.0440 0.00000 $9.05 128.594 $9.05 $1,163.78
1/6/89 128.594 0.0280 0.00000 $8.90 128.995 $8.90 $1,159.66
2/6/89 128.995 0.0701 0.00000 $9.08 130.004 $9.08 $1,180.43
2/28/89 130.004 0.0000 0.00000 $9.00 130.004 $8.93 $1,160.93
</TABLE>
$1000(1+T) = ENDING REDEEMABLE VALUE
T = 16.07%
[(1+T)1/34.9]12 = AVERAGE ANNUAL TOTAL
A = 5.26%
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Government Income Securities, Inc.
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 2,996,635,829
<INVESTMENTS-AT-VALUE> 2,977,224,484
<RECEIVABLES> 85,951,445
<ASSETS-OTHER> 2,874
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,063,178,803
<PAYABLE-FOR-SECURITIES> 132,899,479
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 392,266,050
<TOTAL-LIABILITIES> 525,165,529
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,004,227,258
<SHARES-COMMON-STOCK> 296,990,037
<SHARES-COMMON-PRIOR> 393,369,198
<ACCUMULATED-NII-CURRENT> 4,296,058
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (451,098,697)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (19,411,345)
<NET-ASSETS> 2,538,013,274
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 244,168,572
<OTHER-INCOME> 0
<EXPENSES-NET> 28,411,628
<NET-INVESTMENT-INCOME> 215,756,944
<REALIZED-GAINS-CURRENT> (192,595,526)
<APPREC-INCREASE-CURRENT> 3,066,135
<NET-CHANGE-FROM-OPS> 26,227,553
<EQUALIZATION> (2,212,810)
<DISTRIBUTIONS-OF-INCOME> 209,071,289
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,366,043
<NUMBER-OF-SHARES-REDEEMED> 119,737,988
<SHARES-REINVESTED> 6,992,784
<NET-CHANGE-IN-ASSETS> (1,004,064,757)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (268,712,881)
<OVERDISTRIB-NII-PRIOR> 176,787
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 22,038,188
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 35,213,048
<AVERAGE-NET-ASSETS> 2,935,539,823
<PER-SHARE-NAV-BEGIN> 9.000
<PER-SHARE-NII> 0.630
<PER-SHARE-GAIN-APPREC> (0.460)
<PER-SHARE-DIVIDEND> 0.620
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 8.550
<EXPENSE-RATIO> 97
<AVG-DEBT-OUTSTANDING> 359,514,367
<AVG-DEBT-PER-SHARE> 1.063
</TABLE>
