FUND FOR U.S. GOVERNMENT SECURITIES, INC.
CLASS A SHARES
PROSPECTUS
The Class A Shares of Fund For U.S. Government Securities, Inc., (the "Fund")
represent interests in an open-end, diversified management investment company (a
mutual fund) that seeks current income by investing in a professionally managed,
diversified portfolio limited to U.S. government securities.
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
GOVERNMENT 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 Class A Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares, dated July 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information, or to make inquiries about the Fund contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated July 31, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS--
CLASS A SHARES 2
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GENERAL INFORMATION 3
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LIBERTY FAMILY OF FUNDS 3
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Liberty Family Retirement Program 5
INVESTMENT INFORMATION 5
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Investment Objective 5
Investment Policies 5
Acceptable Investments 5
Collateralized Mortgage Obligations 6
Repurchase Agreements 7
When-Issued and Delayed Delivery
Transactions 7
Lending of Portfolio Securities 7
Portfolio Turnover 7
Investment Limitations 7
NET ASSET VALUE 8
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INVESTING IN CLASS A SHARES 8
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Share Purchases 8
Through a Financial Institution 8
Directly from the Distributor 8
Minimum Investment Required 9
What Shares Cost 9
Dealer Concession 10
Reducing the Sales Load 10
Quantity Discounts and Accumulated
Purchases 10
Letter of Intent 11
Reinvestment Privilege 11
Purchases with Proceeds from
Redemptions of Unaffiliated
Investment Companies 11
Concurrent Purchases 11
Systematic Investment Program 11
Certificates and Confirmations 12
Dividends and Distributions 12
Retirement Plans 12
EXCHANGE PRIVILEGE 12
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Reduced Sales Load 12
Requirements for Exchange 13
Tax Consequences 13
Making an Exchange 13
Telephone Instructions 13
REDEEMING CLASS A SHARES 14
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Through a Financial Institution 14
Directly from the Fund 14
By Telephone 14
By Mail 14
Signatures 15
Contingent Deferred Sales Charge 15
Systematic Withdrawal Program 16
Accounts with Low Balances 16
FUND INFORMATION 16
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Management of the Fund 16
Board of Directors 16
Officers and Directors 16
Investment Adviser 19
Advisory Fees 20
Adviser's Background 20
Distribution of Class A Shares 20
Administration of the Fund 21
Administrative Services 21
Shareholder Services Plan 21
Other Payments to Financial
Institutions 21
Custodian 22
Transfer Agent and Dividend
Disbursing Agent 22
Legal Counsel 22
Independent Auditors 22
Brokerage Transactions 22
SHAREHOLDER INFORMATION 22
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Voting Rights 22
TAX INFORMATION 23
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Federal Income Tax 23
Pennsylvania Corporate and Personal
Property Taxes 23
PERFORMANCE INFORMATION 23
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OTHER CLASSES OF SHARES 24
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FINANCIAL HIGHLIGHTS--
CLASS C SHARES 25
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. 4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)............................................. 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.......................................................................................... 0.60%
12b-1 Fee............................................................................................... None
Total Other Expenses.................................................................................... 0.36%
Shareholder Services Fee (2)............................................................. 0.15%
Total Class A Shares Operating Expenses (3).................................................... 0.96%
</TABLE>
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(1) Shareholders who purchased Shares with the proceeds of a redemption of
shares of a mutual fund sold with a sales load and not distributed by
Federated Securities Corp., prior to June 1, 1994, will be charged a
contingent deferred sales charge by the Fund's distributor of .50 of 1% for
redemptions made within one year of purchase. See "Contingent Deferred Sales
Charge."
(2) The maximum Shareholder Services fee is 0.25%.
(3) The Total Class A Shares Operating Expenses in the table above are based on
expenses expected for the fiscal year ending March 31, 1995. The Total Class
A Shares Operating Expenses were 0.88% for the fiscal year ended March 31,
1994.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "INVESTING IN CLASS A SHARES" AND "FUND INFORMATION."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1)
5% annual return and (2) redemption at the end of each time period....... $54 $74 $96 $157
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Class A Shares of the Fund. The Fund also offers two additional classes of
shares called Class B Shares and Class C Shares. Class A Shares, Class B Shares,
and Class C Shares are subject to certain of the same expenses. However, Class B
Shares are subject to a 12b-1 fee of up to 0.75% and a maximum contingent
deferred sales charge of 5.00%, but are not subject to a sales load. Class C
Shares are subject to a 12b-l fee of 0.75% and a contingent deferred sales
charge of l.00% but are not subject to a sales load. See "Other Classes of
Shares."
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS A SHARES
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent public auditors. Their report dated May 13, 1994 on the Fund's
financial statements for each of the ten years for the period ended March 31,
1994 is included in the Annual Report dated March 31, 1994, which is
incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
NET ASSET VALUE,
BEGINNING OF PERIOD $8.50 $8.51 $8.41 $8.23 $8.01 $8.41 $8.56 $8.77 $8.37 $7.74
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
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Net investment
income 0.63 0.71 0.75 0.77 0.78 0.76 0.78 0.80 0.93 0.74
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.61) (0.03) 0.08 0.19 0.21 (0.40) (0.15) (0.21) 0.46 0.64
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total from
investment
operations 0.02 0.68 0.83 0.96 0.99 0.36 0.63 0.59 1.39 1.38
- --------------------
LESS DISTRIBUTIONS
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Dividends to
shareholders from
net investment
income (0.63) (0.69) (0.73) (0.78) (0.77) (0.76) (0.78) (0.80) (0.99) (0.75)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END
OF PERIOD $7.89 $8.50 $ 8.51 $8.41 $8.23 $8.01 $8.41 $8.56 $8.77 $8.37
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN** 0.13% 8.31% 10.20% 12.12% 12.59% 4.47% 7.66% 7.23% 17.42% 18.39%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.88% 0.83% 0.91% 0.97% 0.96% 0.96% 0.96% 0.95% 0.91% 0.89%(a)
- --------------------
Net investment
income 7.50% 8.33% 8.69% 9.21% 9.32% 9.22% 9.31% 9.24% 10.51% 12.11%(a)
- --------------------
Expense waiver/
reimbursement -- -- -- -- 0.04% -- 0.01% 0.05% 0.13% 0.55%(a)
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $1,693,293 $1,844,712 $1,384,117 $1,133,017 $1,039,493 $1,054,055 $1,150,395 $1,193,389 $761,290 $156,834
- --------------------
Portfolio turnover
rate 149% 52% 43% 27% 98% 83% 72% 135% 179% 121%
- --------------------
<CAPTION>
JUNE 30,
1984
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $8.45
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.92
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.72)
- -------------------- -----------
Total from
investment
operations 0.20
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.91)
- -------------------- -----------
NET ASSET VALUE, END
OF PERIOD $7.74
- -------------------- -----------
TOTAL RETURN** 2.27%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 1.15%
- --------------------
Net investment
income 11.16%
- --------------------
Expense waiver/
reimbursement 0.24 %
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $47,215
- --------------------
Portfolio turnover
rate 117 %
- --------------------
</TABLE>
* For the nine months ended March 31, 1985. The Fund changed its fiscal
year-end from June 30 to March 31, effective March 1, 1985.
**Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b)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 dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
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The Fund was incorporated under the laws of the State of Maryland on June 9,
1969. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors ("Directors") has established three
classes of shares, known as Class A Shares, Class B Shares and Class C Shares.
This prospectus relates only to the Class A Shares ("Shares") of the Fund.
Class A Shares of the Fund are designed for individuals and institutions seeking
current income through a professionally managed, diversified portfolio of
securities which are guaranteed as to the payment of principal and interest by
the U.S. government, its agencies or instrumentalities. A minimum initial
investment of $500 is required, unless the investment is in a retirement
account, in which case the minimum initial investment is $50.
Class A 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 is
imposed on certain shares. For a more complete description, see "Redeeming Class
A Shares".
LIBERTY FAMILY OF FUNDS
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This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
International Equity Fund, providing long-term capital growth and income
through international securities;
International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;
Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation of
principal, primarily limited to municipal securities;
Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
Shareholders of Class A Shares participating in The Liberty Account, are
designated as Liberty Life Members. Liberty Life Members are exempt from sales
loads on future purchases in and exchanges between the Class A Shares of any
Funds in the Liberty Family of Funds, as long as they maintain a $500 balance in
one of the Liberty Funds.
Liberty Life Members are those individuals who previously invested in the Fund
through an agreement with the American Association of Retired Persons ("AARP")
who promoted the Fund to its members. When these members initially invested in
the Fund, they did so at net asset value because the Fund did not impose a sales
load at that time. As the Fund's marketing efforts expanded, a sales load was
imposed upon investors who invested through broker/dealers, but Liberty Life
Members were still exempt from this sales load. The formal agreement with AARP
to promote the Fund's Class A Shares to its members no longer exists, but
Liberty Life Members are still exempt from the sales load based on the former
agreement. Liberty Life Membership is limited to current Liberty Life Members
and members of their immediate family, including their children.
LIBERTY FAMILY RETIREMENT PROGRAM
The Fund is also a member of the Liberty Family Retirement Program (the
"Program"), an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit and
savings plans. Under the Program, employers or plan trustees may select a group
of investment options to be offered in a plan which also uses the Program for
recordkeeping and administrative services. Additional fees are charged to
participating plans for these services. As part of the Program, exchanges may
readily be made between investment options selected by the employer or a plan
trustee.
The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc., Capital Growth Fund, International Equity Fund,
International Income Fund, Liberty Equity Income Fund, Inc., Liberty High Income
Bond Fund, Inc., Liberty Utility Fund, Inc., Prime Cash Series, and Stock and
Bond Fund, Inc.
No sales load is imposed on purchases made by qualified retirement plans with
over $l million invested in funds available in the Liberty Family Retirement
Program.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund invests only in securities which are primary
or direct obligations of the U.S. government, its agencies or instrumentalities,
or which are guaranteed by the U.S. government, its agencies, or
instrumentalities, and in certain collateralized mortgage obligations ("CMOs")
described below.
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
obligations of U.S. government agencies or instrumentalities such as
Federal Land Banks, Farmers Home Administration, Federal Home Loan Banks,
Federal Intermediate Credit Banks, Central Bank for Cooperatives, and
Federal National Mortgage Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
There is no limit to portfolio maturity. The prices of government bonds
fluctuate inversely in relation to the direction of interest rates. The prices
of longer term bonds fluctuate more widely in response to market interest rate
changes.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations are
debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or
Freddie Mac Certificates, but also may be collateralized by whole loans or
Private Pass-Throughs (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests in a
trust composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. CMOs in which the Fund
invests are issued by agencies or instrumentalities of the U.S. government. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit (a "REMIC"), which has certain special tax attributes.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
CMOs that include a class bearing a floating rate of interest also may include a
class whose yield floats inversely against a specified index rate. These
"inverse floaters" are more volatile than conventional fixed or floating rate
classes of a CMO and the yield thereon, as well as the value thereof, will
fluctuate in inverse proportion to changes in the index on which interest rate
adjustments are based. As a result, the yield on an inverse floater class of a
CMO will generally increase when market yields (as reflected by the index)
decrease and increase when market yields decrease. The extent of the volatility
of inverse floaters depends on the extent of anticipated changes in market rates
of interest. Generally, inverse floaters provide for interest rate adjustments
based upon a multiple of the specified interest index, which further increases
their volatility. The degree of additional volatility will be directly
proportional to the size of the multiple used in determining interest rate
adjustments.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other
types of debt instruments. Prepayment risks on mortgage securities tend to
increase during periods of declining mortgage interest rates because many
borrowers refinance their mortgages to take advantage of the more favorable
rates. Depending upon market conditions, the yield that the Fund receives from
the reinvestment of such prepayments, or any scheduled principal payments, may
be lower than the yield on the original mortgage security. As a consequence,
mortgage securities may be a less effective means of "locking in" interest rates
than other types of debt securities having the same stated maturity and may also
have less potential for capital appreciation. For certain types of asset pools,
such as collateralized mortgage obligations, prepayments may be allocated to one
tranche of securities ahead of other tranches, in order to reduce the risk of
prepayment for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of mortgage securities purchased at
a market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as ordinary
income when distributed to the shareholders.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Fund invests
may be purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government or other securities to the Fund and agree at
the time of sale to repurchase them at a mutually agreed upon time and price.
As a matter of investment practice which can be changed without shareholder
approval, the Fund will not invest more than 10% of its total assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
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 Board of Directors and will receive collateral equal to at least
100% of the value of the securities loaned in the form of cash or U.S.
government securities.
PORTFOLIO TURNOVER. Securities in the Fund's portfolio will be sold whenever
the Fund's investment adviser believes it is appropriate to do so in light of
the Fund's investment objective, without regard to the length of time a
particular security may have been held. The adviser to the Fund does not
anticipate that portfolio turnover will result in adverse tax consequences. Any
such trading will increase the Fund's portfolio turnover rate and transaction
costs.
INVESTMENT LIMITATIONS
The Fund will not borrow money except, under certain circumstances, the Fund may
borrow up to 10% of the value of its total assets.
The following limitation 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 own securities of open-end or closed-end investment companies,
except under certain circumstances and subject to certain limitations not
exceeding 10% of its net assets.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class A Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class A Shares in the liabilities of the Fund and those attributable to the
Class A Shares, and dividing the remainder by the total number of Class A Shares
outstanding. The net asset value for Class A Shares may differ from that of
Class B Shares and Class C Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN CLASS A SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the distributor Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may, from time to time, offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders placed through a financial institution are considered received when the
Fund is notified of the purchase order or when converted into federal funds.
Purchase orders through a registered broker/dealer must be received by the
broker before 4:00 p.m. (Eastern time) and must be transmitted by the broker to
the Fund before 5:00 p.m. (Eastern time) in order for Shares to be purchased at
that day's price. Purchase orders through other financial institutions must be
received by the financial institution and transmitted to the Fund before 4:00
p.m. (Eastern time) in order for Shares to be purchased at that day's price. It
is the financial institution's responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from Federated Securities Corp. once an account has been
established. To do so:
complete and sign the new account form available from the Fund;
enclose a check made payable to Fund for U.S. Government Securities,
Inc.-Class A Shares; and
mail both to Federated Services Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire, once an account has
been established, call the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts 02105;
Attention: Mutual Fund Servicing Division; For Credit to: Fund for U.S.
Government Securities, Inc.-Class A Shares; Title or Name of Account; Wire Order
Number and/or Account Number. Shares cannot be purchased by wire on Columbus
Day, Veteran's Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Class A Shares is $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. (Other minimum
investment requirements may apply to investments through the Liberty Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales load as follows:
<TABLE>
<CAPTION>
SALES LOAD AS SALES LOAD AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million 1.00% 1.01%
$1 million or more 0.00% 0.00%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Shareholders designated as Liberty Life Members are exempt from sales loads.
Shareholders of record in the Fund on February 28, 1987, who are NOT
participating in The Liberty Account are exempt from sales loads only in the
Fund and only as long as they maintain a $500 balance in the Fund.
No sales load is imposed for Fund Shares purchased through bank trust
departments, investment advisers registered under the Investment Advisers Act of
1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or
its affiliates. However, investors who purchase Shares through a trust
department or investment adviser or retirement plan may be charged an additional
service fee by that institution.
No sales load is imposed on purchases made by qualified retirement plans with
over $1 million invested in funds available in the Liberty Family Retirement
Program.
DEALER CONCESSION. For sales of Shares, a dealer will normally receive up to
90% of the applicable sales load. Any portion of the sales load which is not
paid to a dealer will be retained by the distributor. However, the distributor,
may offer to pay dealers up to 100% of the sales load retained by it. Such
payments may take the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses to
attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. In some instances,
these incentives will be made available only to dealers whose employees have
sold or may sell a significant amount of Shares. On purchases of $1 million or
more, the investor pays no sales load; however, the distributor will make twelve
monthly payments to the dealer totalling 0.25% of the public offering price over
the first year following the purchase. Such payments are based on the original
purchase price of Shares outstanding at each month end.
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 Shares.
REDUCING THE SALES LOAD
The sales load can be reduced on the purchase of Shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege;
purchases with proceeds from redemptions of unaffiliated mutual fund
shares; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales load paid. The Fund will combine purchases of
Shares made on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales load. In addition,
the sales load, if applicable, is reduced for purchases made at one time by a
trustee or fiduciary for a single trust estate or a single fiduciary
account.
If an additional purchase of Shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
Shares having a current value at the public offering price of $90,000 and he
purchases $10,000 more at the current public offering price, the sales load on
the additional purchase according to the schedule now in effect would be 3.75%,
not 4.50%.
To receive the sales load reduction, Federated Securities Corp. must be notified
by the shareholder in writing or by his financial institution at the time the
purchase is made that Shares are already owned or that purchases are being
combined. The Fund will reduce the sales load after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the funds in the Liberty Family of Funds over the next 13 months, the
sales load may be reduced by signing a letter of intent to that effect. This
letter of intent includes a provision for a sales load adjustment depending on
the amount actually purchased within the 13-month period and a provision for the
custodian to hold 4.5% of the total amount intended to be purchased in escrow
(in shares) until such purchase is completed.
The 4.5% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales load.
This letter of intent will not obligate the shareholder to purchase Shares, but
if he does, each purchase during the period will be at the sales load applicable
to the total amount intended to be purchased. This letter may be dated as of a
prior date to include any purchases made within the past 90 days towards the
dollar fulfillment of the letter of intent. Prior trade prices will not be
adjusted.
REINVESTMENT PRIVILEGE. If Shares in the Fund have been redeemed, the
shareholder has a one-time right, within 120 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales load.
Federated Securities Corp. must be notified by the shareholder in writing or by
his financial institution of the reinvestment in order to eliminate a sales
load. If the shareholder redeems his Shares in the Fund, there may be tax
consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Shares at net asset value, without a sales load, with
the proceeds from the redemption of shares of an investment company which were
sold with a sales load or commission and were not distributed by Federated
Securities Corp. (This does not include shares of a mutual fund which were or
would be subject to a contingent deferred sales charge upon redemption.) The
purchase must be made within 60 days of the redemption, and Federated Securities
Corp. must be notified by the investor in writing, or by his financial
institution, at the time the purchase is made.
CONCURRENT PURCHASES. For purposes of qualifying for a sales load reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Liberty Family of Funds, the purchase price of which includes a
sales load. For example, if a shareholder concurrently invested $30,000 in one
of the other Liberty Funds with a sales load, and $70,000 in this Fund, the
sales load would be reduced.
To receive this sales load reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by his financial institution at the
time the concurrent purchases are made. The Fund will reduce the sales 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 in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the Fund, plus the applicable sales load. A shareholder may apply
for participation in this program through his financial institution or directly
through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared 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. 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, unless shareholders
request cash payments on the new account form or by writing to the transfer
agent. All shareholders on the record date are entitled to the dividend. The
record date is the second to last business day of each month. If Shares are
redeemed or exchanged prior to the record date or purchased after the record
date, those Shares are not entitled to that month's dividend.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Shareholders
of Class A Shares may also exchange into certain funds which are advised by
subsidiaries or affiliates of Federated Investors ("Federated Funds") which are
sold with a sales load different from that of the Fund's or with no sales load.
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 Federated Fund into
which the Shares are to be exchanged, if higher. Neither the Fund nor any of the
funds in the Liberty Family of Funds imposes any additional fees on exchanges.
Shareholders in certain other Federated Funds may exchange their shares in the
Federated Funds for Class A Shares. Participants in a plan under the Liberty
Family Retirement Program may exchange all or some of their Shares for Class A
Shares of other funds offered under the plan at net asset value.
REDUCED SALES LOAD
If a shareholder making such an exchange qualifies for a reduction of the sales
load, Federated Securities Corp. must be notified in writing by the shareholder
or by his financial institution.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. The exchange privilege may be
modified or terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege. This privilege is not
available where redeemed Shares are assessed a contingent deferred sales charge
or similar charge.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions. Shares may be
exchanged between two funds by telephone only if the two funds have identical
shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions are recorded and will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the Fund before that time for Shares to be exchanged the
same day. Shareholders exchanging into a Fund will not receive any dividend that
is payable to shareholders of record on that date. This privilege may be
modified or terminated at any time.
REDEEMING CLASS A SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value , less any applicable
contingent deferred sales charge, next determined after the Fund receives the
redemption request. Redemptions will be made on days on which the Fund computes
its net asset value. Redemptions can be made through a financial institution or
directly from the Fund. Redemption requests must be received in proper form.
Redemptions of Shares held through the Liberty Family Retirement Program will be
governed by the requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value, less any applicable contingent deferred
sales charge, next determined after the Fund receives the redemption request
from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased Shares through a financial
institution may redeem their Shares by telephoning the Fund. Telephone
redemption instructions may be recorded. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. The minimum amount for a wire transfer is $l,000. If at any time
the Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The
written request should include the shareholder's name, the Fund name and class
designation, the account number, and the Share or dollar amount requested, and
should be signed exactly as the Shares are registered.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares with the proceeds of a redemption of shares of
a mutual fund sold with a sales load and not distributed by Federated Securities
Corp. prior to June 1, 1994, will be charged a contingent deferred sales charge
by the Fund's distributor of 0.50 of 1% for redemptions made within one year of
purchase. Purchases under the program made after that date will not be subject
to any type of contingent deferred sales charge. The contingent deferred sales
charge will be calculated based upon the lesser of the original purchase price
of the Shares or the net asset value of the Shares when redeemed.
The contingent deferred sales charge will not be imposed on Shares acquired
through reinvestment of dividends or distributions of long-term capital gains.
Redemptions are deemed to have occurred in the following order: 1) Shares
acquired through the reinvestment of dividends and long-term capital gains, 2)
purchases of Shares occurring more than one year before the date of redemption,
3) purchases of Shares within the previous year without the use of redemption
proceeds as described above, and 4) purchases of Shares within the previous year
through the use of redemption proceeds as described above.
The contingent deferred sales charge 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 retirement 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 59-1/2; or (iii) from the death or permanent and
total disability of the beneficial owner. The exemption
from the contingent deferred sales charge 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.
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class A Shares in other Liberty Family Funds or Liberty
Family Retirement Program funds or in connection with redemptions by the Fund of
accounts with low balances. No contingent deferred sales charge will be charged
for redemptions from the Liberty Family Retirement Program.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution. Due
to the fact that Shares are sold with a sales load, it is not advisable for
shareholders to be purchasing Shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$500. This requirement does not apply, however, if the balance falls below $500
because of changes in the Fund's net asset value. Before Shares are redeemed to
close an account, the shareholder is notified in writing and allowed 30 days to
purchase additional Shares to meet the minimum requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Services Company, Federated
Securities Corp., Federated Administrative Services, and the Funds (as defined
in the Combined Statement of Additional Information).
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, President and Director of
the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President Northgate Village Development Corporation; General
John R. Wood and Partner or Trustee in private
Associates, Inc., real estate ventures in Southwest Florida; Director,
Realtors Trustee, or Managing General Partner of the Funds; formerly,
3255 Tamiami Trail North President, Naples Property Management, Inc.
Naples, FL
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
J. Christopher Donahue* President President and Trustee, Federated Investors; Trustee and
Federated Investors Tower and Director President, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director and President, 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 Fund.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
Suite 1111 Montefiore Hospitals; Clinical Professor of Medicine and
3471 Fifth Avenue Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General Partner
of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly, President, State Street Bank
and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral Trustee, Carnegie Endowment for International Peace, RAND
of Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Center;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.; President
Pittsburgh, PA or Vice President of the Funds; Director or Trustee of some
of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated In-
Federated Investors Tower and Treasurer vestors; Vice President and Treasurer, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Executive Vice
President, Treasurer, and Director, Federated Securities
Corp.; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee, Federated Services
Company; Trustee of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower Federated Investors; Vice President, Secretary, and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated
Research; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Trustee, Federated
Services Company; Executive Vice President and Director,
Federated Securities Corp.; Vice President and Secretary of
the Funds.
</TABLE>
* This Director is deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940, as amended.
\ Members of the Fund's Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board of Directors
between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, (the "Adviser") 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 based on the Fund's average daily net assets as shown on the chart
below, plus 4.5% of the Fund's gross income (excluding any capital gains or
losses).
<TABLE>
<CAPTION>
% OF AVERAGE
AVERAGE DAILY NET ASSETS DAILY NET ASSETS
<S> <C>
First $500 million .25 of 1%
Second $500 million .225 of 1%
Over $1 billion .20 of 1%
</TABLE>
The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver at
any time at its sole discretion. The Adviser has also undertaken to reimburse
the Fund for operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's co-portfolio manager since February,
1987. Mr. Madich joined Federated Investors in 1984 and has been a Senior
Vice President of the Fund's investment adviser since 1993. Mr. Madich
served as Vice President of the Fund's investment adviser from 1988 until
1993. Mr. Madich is a Chartered Financial Analyst and received his M.B.A.
in Public Finance from the University of Pittsburgh.
Kathleen M. Foody-Malus has been the Fund's co-portfolio manager since
July, 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.
DISTRIBUTION OF CLASS A SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania
corporation organized on November 14, 1969, and is the principal distributor for
a number of investment companies. Federated Securities Corp. is a subsidiary of
Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all Federated Funds as specified
below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Class A Shares to obtain certain personal
services for shareholders and the maintenance of shareholder accounts
("shareholder services"). The Fund has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to perform
shareholder services. Financial Institutions will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
Fund and Federated Shareholder Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from the interpretations
given to the Glass-Steagall Act and, therefore, banks and financial institutions
may be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _Federated Securities Corp. will pay
financial institutions, at the time of purchase, an amount equal to .50 of 1% of
the net asset value of shares purchased by their clients or customers under the
Liberty Family Retirement Program or by certain qualified plans as approved by
Federated Securities Corp. (Such payments are subject to a reclaim from the
financial institution should the assets leave the program within 12 months after
purchase.) 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
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated upon
the amount of Shares the financial institution sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's investment adviser or its affiliates.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604, is transfer agent for the shares of
the Fund, and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, L.L.P., 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Directors.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All shares of each portfolio
or class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be
called by the Directors upon the written request of shareholders owning at least
10% of the Fund's outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
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 the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
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 for Class A
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class A Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class A Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
A Shares over a thirty-day period by the maximum offering price per Share of
Class A Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually earned by Class A Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares and Class C Shares. Because Class B Shares and Class C Shares are subject
to Rule 12b-1 fees, and Shareholder Services fees, the yield for Class A Shares,
for the same period, may exceed that of Class B Shares and Class C Shares.
Because Class A Shares are subject to a higher maximum sales load, the total
return for Class B Shares and Class C Shares for the same period will exceed
that of Class A Shares. Depending on the dollar amount invested, and the time
period for which any particular class of shares is held, the total return for
any particular class may exceed that of another.
From time to time the Fund may advertise the performance of Class A Shares,
Class B Shares, and Class C Shares using certain financial publications and/or
compare the performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund currently offers Class A Shares, Class B Shares and Class C Shares.
Class B Shares are sold primarily to customers of financial institutions and are
subject to certain contingent deferred sales charges. Class B Shares are
distributed pursuant to a 12b-1 Plan adopted by the Fund whereby the distributor
is paid a fee of up to 0.75 of 1%. The Fund has also adopted a Shareholder
Services fee of up to 0.25 of 1% of the Class B Shares' average daily net assets
with respect to Class B Shares to obtain certain personal and shareholder
account services. Investments in Class B Shares are subject to a minimum initial
investment of $1,500, unless the investment is in a retirement account in which
case the minimum investment is $50.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales load; however, Class C Shares are subject to a
contingent deferred sales charge up to 1.00%. Class C Shares are distributed
pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the distributor is
paid a fee of up to 0.75 of 1%, in addition to a Shareholder Services fee of up
to 0.25 of 1% of the Class C Shares' average daily net assets. Investments in
Class C Shares are subject to a minimum initial investment of $1,500 unless the
investment is in a retirement account, in which case the minimum investment is
$50.
The amount of dividends payable to Class A Shares may exceed that of Class B
Shares and Class C Shares by the difference between Class Expenses borne by
Shares of each respective class.
The stated advisory fee is the same for all three classes of Shares.
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent public auditors. Their report dated May 13, 1994 on the Fund's
financial statements for the year ended March 31, 1994 is included in the Annual
Report dated March 31, 1994, which is incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.54
- --------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------------------------------
Net investment income 0.54
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.63)
- -------------------------------------------------------------------------------------------------- ---------------
Total from investment operations (0.09)
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.54)
- --------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)***
- -------------------------------------------------------------------------------------------------- ---------------
Total distributions (0.56)
- -------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 7.89
- -------------------------------------------------------------------------------------------------- ---------------
TOTAL RETURN** (1.17)%
- --------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------------------------------
Expenses 1.81%(a)
- --------------------------------------------------------------------------------------------------
Net investment income 6.45%(a)
- --------------------------------------------------------------------------------------------------
Expense waiver/reimbursement --
- --------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $103,433
- --------------------------------------------------------------------------------------------------
Portfolio turnover rate 149%
- --------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 26, 1993 (date of initial
public offering) to
March 31, 1994.
** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
*** Distributions in excess of net investment income were the result of certain
book and tax timing differences. This distribution does not represent a
return of capital for federal income tax purposes.
(a) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
Annual Report dated March 31, 1994, which can be obtained free of charge.
FUND FOR
U.S. GOVERNMENT
SECURITIES, INC.
CLASS A SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
July 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
360799100
8062807A-A (7/94)
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
CLASS B SHARES
PROSPECTUS
The Class B Shares of Fund For U.S. Government Securities, Inc., (the "Fund")
represent interests in an open-end, diversified management investment company (a
mutual fund) that seeks current income by investing in a professionally managed,
diversified portfolio limited to U.S. government securities.
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 Class B Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares, and Class C Shares, dated July 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or 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 July 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 2
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Collateralized Mortgage Obligations 4
Repurchase Agreements 5
When-Issued and Delayed Delivery
Transactions 5
Lending of Portfolio Securities 5
Portfolio Turnover 6
Investment Limitations 6
NET ASSET VALUE 6
- ------------------------------------------------------
INVESTING IN CLASS B SHARES 6
- ------------------------------------------------------
Share Purchases 6
Through a Financial Institution 6
Directly from the Distributor 7
Minimum Investment Required 7
What Shares Cost 7
Conversion of Class B Shares 8
Systematic Investment Program 8
Certificates and Confirmations 8
Dividends and Distributions 8
Retirement Plans 9
EXCHANGE PRIVILEGE 9
- ------------------------------------------------------
Requirements for Exchange 9
Tax Consequences 9
Making an Exchange 9
Telephone Instructions 10
REDEEMING CLASS B SHARES 10
- ------------------------------------------------------
Through a Financial Institution 10
Directly from the Fund 10
By Telephone 10
By Mail 11
Signatures 11
Contingent Deferred Sales Charge 11
Elimination of Contingent Deferred
Sales Charge 12
Systematic Withdrawal Program 13
Reinvestment Privilege 13
Accounts with Low Balances 13
FUND INFORMATION 14
- ------------------------------------------------------
Management of the Fund 14
Board of Directors 14
Officers and Directors 14
Investment Adviser 17
Advisory Fees 17
Adviser's Background 17
Distribution of Class B Shares 18
Distribution and Shareholder
Services Plans 18
Other Payments to Financial Institutions 19
Administration of the Fund 19
Administrative Services 19
Custodian 19
Transfer Agent and Dividend
Disbursing Agent 19
Legal Counsel 19
Independent Auditors 19
Brokerage Transactions 20
Expenses of the Fund and Class B Shares 20
SHAREHOLDER INFORMATION 20
- ------------------------------------------------------
Voting Rights 20
TAX INFORMATION 21
- ------------------------------------------------------
Federal Income Tax 21
Pennsylvania Corporate and Personal
Property Taxes 21
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
OTHER CLASSES OF SHARES 22
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS C SHARES 23
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES 24
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)................................ None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)..................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable) (1)................................................. 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)......................................... None
Exchange Fee............................................................................................... None
ANNUAL CLASS B SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee............................................................................................. 0.60%
12b-1 Fee (after waiver) (2)............................................................................... 0.70%
Total Other Expenses....................................................................................... 0.46%
Shareholder Services Fee.................................................................... 0.25%
Total Class B Shares Operating Expenses (3)(4).................................................... 1.76%
</TABLE>
- ---------
(1) The contingent deferred sales charge is 5.50% in the first year, declining
to 1.00% in the sixth year and 0.00% thereafter. (See "Contingent Deferred
Sales Charge").
(2) The maximum 12b-1 fee is 0.75%.
(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately seven years after purchase.
(4) The total Class B Shares Operating Expenses are estimated to be 1.81% absent
the anticipated voluntary waiver of a portion of the 12b-1 fee.
* Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending March 31, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS B SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN CLASS B SHARES" AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales load permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period.................................................. $ 75 $ 99
You would pay the following expenses on the same investment,
assuming no redemption......................................................................... $ 18 $ 55
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING MARCH 31,
1995.
The information set forth in the foregoing table and example relates only to
Class B Shares of the Fund. The Fund also offers two additional classes of
shares called Class A Shares and Class C Shares. Class A Shares, Class B Shares
and Class C Shares are subject to certain of the same expenses. However, Class A
Shares are subject to a maximum sales load of 4.50%, but are not subject to a
contingent deferred sales charge or a 12b-1 fee. Class C Shares are subject to a
12b-l fee of 0.75% and a contingent deferred sales charge of l.00% but are not
subject to a sales load. See "Other Classes of Shares."
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on June 9,
1969. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors ("Directors") have established three
classes of shares, known as Class A Shares, Class B Shares, and Class C Shares.
This prospectus relates only to the Class B Shares ("Shares") of the Fund.
Class B Shares of the Fund are designed for individuals and institutions seeking
current income through a professionally managed, diversified portfolio of
securities which are guaranteed as to the payment of principal and interest by
the U.S. government, its agencies or instrumentalities. A minimum initial
investment of $1,500 is required, unless the investment is in a retirement
account, in which case the minimum is $50.
Except as otherwise noted in this prospectus, Class B Shares are sold at net
asset value and are redeemed at net asset value. However, a contingent deferred
sales charge is imposed on certain Shares which are redeemed within six full
years of purchase.
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
International Equity Fund, providing long-term capital growth and income
through international securities;
International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income-producing equity securities;
Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated, corporate bonds;
Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high quality U.S.
government securities;
Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas and communication utilities;
Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation of
principal, primarily limited to municipal securities;
Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
World Utility Fund, providing total return through securities issued by
domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund invests only in securities which are primary
or direct obligations of the U.S. government, or its agencies or
instrumentalities, or which are guaranteed by the U.S. government, its agencies,
or instrumentalities, and in certain collateralized mortgage obligations
("CMOs") described below.
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
obligations of U.S. government agencies or instrumentalities such as
Federal Land Banks, Farmers Home Administration, Federal Home Loan Banks,
Federal Intermediate Credit Banks, Central Bank for Cooperatives, and
Federal National Mortgage Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations are
debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or
Freddie Mac Certificates, but also may be collateralized by whole loans or
Private Pass-Throughs (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests in a
trust composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the multiclass pass-through securities. CMOs in which the Fund
invests are issued by agencies or instrumentalities of the U.S. government. The
issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage
Investment Conduit (a "REMIC"), which has certain special tax attributes.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
CMOs that include a class bearing a floating rate of interest also may include a
class whose yield floats inversely against a specified index rate. These
"inverse floaters" are more volatile than conventional fixed or floating rate
classes of a CMO and the yield thereon, as well as the value thereof, will
fluctuate in inverse proportion to changes in the index on which interest rate
adjustments are based. As a result,
the yield on an inverse floater class of a CMO will generally increase when
market yields (as reflected by the index) decrease and increase when market
yields decrease. The extent of the volatility of inverse floaters depends on the
extent of anticipated changes in market rates of interest. Generally, inverse
floaters provide for interest rate adjustments based upon a multiple of the
specified interest index, which further increases their volatility. The degree
of additional volatility will be directly proportional to the size of the
multiple used in determining interest rate adjustments.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates because many borrowers refinance their mortgages to take
advantage of the more favorable rates. Depending upon market conditions, the
yield that the Fund receives from the reinvestment of such prepayments, or any
scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of "locking in" interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other tranches, in order to reduce the risk of prepayment for the other
tranches.
Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of mortgage securities purchased at
a market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as ordinary
income when distributed to the shareholders.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Fund invests
may be purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government or other securities to the Fund and agree at
the time of sale to repurchase them at a mutually agreed upon time and price.
As a matter of investment practice which can be changed without shareholder
approval, the Fund will not invest more than 10% of its total assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
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 Board of Directors and will receive collateral equal to at least
100% of the value of the securities loaned in the form of cash or U.S.
government securities.
PORTFOLIO TURNOVER. Securities in the Fund's portfolio will be sold whenever
the Fund's investment adviser believes it is appropriate to do so in light of
the Fund's investment objective, without regard to the length of time a
particular security may have been held. The adviser to the Fund does not
anticipate that portfolio turnover will result in adverse tax consequences. Any
such trading will increase the Fund's portfolio turnover rate and transaction
costs.
INVESTMENT LIMITATIONS
The Fund will not borrow money except, under certain circumstances, the Fund may
borrow up to 10% of the value of its total assets.
The following limitation 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 own securities of open-end or closed-end investment companies,
except under certain circumstances and subject to certain limitations not
exceeding 10% of its net assets.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of the Class B Shares in the market value
of all securities and other assets of the Fund, subtracting the interest of the
Class B Shares in the liabilities of the Fund and those attributable to the
Class B Shares, and dividing the remainder by the total number of Class B Shares
outstanding. The net asset value for Class B Shares may differ from that of
Class A Shares and Class C Shares due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN CLASS B SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Fund
shares, Federated Securities Corp. may, from time to time, offer certain items
of nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
Orders for $250,000 or more of Class B Shares will normally be invested in Class
A Shares (see "Other Classes of Shares").
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders placed through a financial institution are considered received when the
Fund is notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares
to be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from Federated Securities Corp. once an account has been
established. To do so:
complete and sign the new account form available from the Fund;
enclose a check made payable to Fund for U.S. Government Securities,
Inc.--Class B Shares; and
mail both to Federated Services Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire, call the Fund. All
information needed will be taken over the telephone, and the order is considered
received when State Street Bank receives payment by wire. Federal funds should
be wired as follows: Federated Services Company, c/o State Street Bank and Trust
Company, Boston, Massachusetts 02105; Attention: Mutual Fund Servicing Division;
For Credit to: Fund for U.S. Government Securities, Inc.--Class B Shares; Title
or Name of Account; Wire Order Number and/or Account Number. Shares cannot be
purchased by wire on Columbus Day, Veteran's Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Class B Shares 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
Shares are sold at their net asset value next determined after an order is
received.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Under certain circumstances, described under "Redeeming Class B Shares,"
shareholders may be charged a contingent deferred sales charge by the
distributor at the time Shares are redeemed.
CONVERSION OF CLASS B SHARES. Class B Shares will automatically convert into
Class A Shares at the end of the month eight years after the purchase date,
except as noted below, and will no longer be subject to a distribution services
fee (see "Other Classes of Shares"). Such conversion will be on the basis of the
relative net asset values per share, without the imposition of any sales load,
fee or other charge. Class B Shares acquired by exchange from Class B Shares of
another fund in the Liberty Family of Funds will convert into Class A Shares
based on the time of the initial purchase. For purposes of conversion to Class A
Shares, shares purchased through the reinvestment of dividends and distributions
paid on Class B Shares will be considered to be held in a separate sub-account.
Each time any Class B Shares in the shareholder's account (other than those in
the sub-account) convert to Class A Shares, an equal pro rata portion of the
Class B Shares in the sub-account will also convert to Class A Shares. The
availability of the conversion feature is subject to the granting of an
exemptive order by the Securities and Exchange Commission or the adoption of a
rule permitting such conversion. In the event that the exemptive order or rule
ultimately issued by the Securities and Exchange Commission requires any
conditions additional to those described in this prospectus, shareholders will
be notified. The conversion of Class B Shares to Class A Shares is subject to
the continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute taxable events for
Federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B Shares to Class A Shares will not
occur if such ruling or opinion is not available. In such event, Class B Shares
would continue to be subject to higher expenses than Class A Shares for an
indefinite period.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the Fund. A shareholder may apply for participation in this program
through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
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. 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, unless shareholders
request cash payments on the new account form or by writing to the transfer
agent. All shareholders on the record date are entitled to the dividend. If
Shares are redeemed or exchanged prior to the record date or purchased after the
record date, those Shares are not entitled to that month's dividend.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Class B shareholders may exchange all or some of their
Shares for Class B Shares of other funds in the Liberty Family of Funds. (Not
all funds in the Liberty Family of Funds currently offer Class B Shares. Contact
your financial institution regarding the availability of other Class B Shares in
the Liberty Family of Funds.) Exchanges are made at net asset value without
being assessed a contingent deferred sales charge on the exchanged shares. To
the extent that a shareholder exchanges Shares for Class B Shares in other funds
in the Liberty Family of Funds, the time for which the exchanged-for shares were
held will be added, or tacked, to the time for which exchanged-from shares were
held for purposes of satisfying the applicable holding period.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Class B Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege. This
privilege is not available where redeemed Shares are assessed a contingent
deferred sales charge or similar charge.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds may be given in
writing or by telephone. Written instructions may require a signature guarantee.
Shareholders of the Fund may have difficulty in making exchanges by telephone
through brokers and other financial institutions during times of drastic
economic or market changes. If a shareholder cannot contact his broker or
financial institution by telephone, it is recommended that an exchange request
be made in writing and sent by overnight mail to Federated Services Company,
P.O. Box 8604, Boston, Massachusetts, 02266-8604.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. Shares
may be exchanged between two funds by telephone only if the two funds have
identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts
02266-8604, and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions may be recorded. Such instructions will be
processed as of 4:00 p.m. (Eastern time) and must be received by the transfer
agent before that time for Shares to be exchanged the same day. Shareholders
exchanging into a fund will not receive any dividend that is payable to
shareholders of record on that date. This privilege may be modified or
terminated at any time. If reasonable procedures are not followed by the Fund,
it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
REDEEMING CLASS B SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, next determined after the Fund
receives the redemption request, less any applicable contingent deferred sales
charge (see "Contingent Deferred Sales Charge" below). Redemptions will be made
on days on which the Fund computes its net asset value. Redemptions can be made
through a financial institution or directly from the Fund. Redemption requests
must be received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value, less any applicable contingent deferred
sales charge, next determined after the Fund receives the redemption request
from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 P.M. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The proceeds will
be mailed to the shareholder's address of record or wire transferred to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event longer
than seven days after the request. The minimum amount for a wire transfer is
$l,000. If at any time the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the transfer agent to accept telephone requests
must first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
Telephone redemption instructions may be recorded. If reasonable procedures are
not followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
BY MAIL. Any shareholder may redeem Shares by sending a written request to the
transfer agent. The written request should include the shareholder's name, the
Fund name and class designation, the account number, and the share or dollar
amount requested, and should be signed exactly as the Shares are registered.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming Shares from their Fund accounts within six full years of
the purchase date of those Shares will be charged a contingent deferred sales
charge by the Fund's distributor. Any applicable contingent deferred sales
charge will be imposed on the lesser of the net asset value of the
redeemed Shares at the time of purchase or the net asset value of the redeemed
Shares at the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First.................................................................................. 5.50%
Second................................................................................. 4.75%
Third.................................................................................. 4%
Fourth................................................................................. 3%
Fifth.................................................................................. 2%
Sixth.................................................................................. 1%
Seventh and thereafter................................................................. 0%
</TABLE>
The contingent deferred sales charge will be deducted from the redemption
proceeds otherwise payable to the shareholder and will be retained by the
distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order: (1) Shares acquired through the reinvestment of dividends and
long-term capital gains; (2) Shares held for more than six full years from the
date of purchase; (3) Shares held for fewer than six years on a first-in,
first-out basis. A contingent deferred sales charge is not assessed in
connection with an exchange of Fund Shares for shares of other Class B Shares of
funds in the Liberty Family of Funds (see "Exchanges for Shares of Other
Funds"). Any contingent deferred sales charge imposed at the time the exchanged-
for shares are redeemed is calculated as if the shareholder had held the shares
from the date on which he became a shareholder of the exchanged-from shares.
Moreover, the contingent deferred sales charge will be eliminated with respect
to certain redemptions (see "Elimination of Contingent Deferred Sales Charge"
below).
ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The contingent deferred sales charge will be eliminated with respect to the
following redemptions:
(1) redemptions following the death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code of 1986, of a shareholder; (2) Redemptions
representing minimum required distributions from an Individual Retirement
Account or other retirement plan to a shareholder who has attained the age of
70-1/2; and (3) involuntary redemptions by the Fund of shares in shareholder
accounts that do not comply with the minimum balance requirements. In addition,
to the extent that the distributor does not make advance payments to certain
financial institutions for purchases made by their clients, no contingent
deferred sales charge will be imposed on redemptions of Shares held by
Directors, employees and sales representatives of the Fund, the distributor, or
affiliates of the Fund or distributor; employees of any financial institution
that sells shares of the Fund pursuant to a sales agreement with the
distributor; and spouses and children under the age of 21 of the aforementioned
persons. Finally, no contingent deferred sales charge will be imposed on the
redemption of Shares originally purchased through a bank trust department, an
investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through such entities. The Directors reserve
the right to discontinue elimination of the contingent deferred sales charge.
Shareholders will be notified of such elimination. Any Shares purchased prior to
the termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Fund's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution. A
contingent deferred sales charge will be imposed on Shares redeemed within six
full years of their purchase date.
REINVESTMENT PRIVILEGE
If shares have been redeemed, the shareholder has a one-time right, within 120
days, to reinvest the redemption proceeds into Class A Shares at the
next-determined net asset value without a sales load (see "Other Classes of
Shares"). Federated Securities Corp. must be notified by the shareholder in
writing or by his financial institution of the reinvestment in order to receive
this privilege. If the shareholder redeems his shares, there may be tax
consequences.
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 the required minimum value of
$1,500. This requirement does not apply, however, if the balance falls below
$1,500 because of changes in the Fund's net asset value. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Securities Corp., Federated
Administrative Services, Inc., and the Funds (as defined in the Combined
Statement of Additional Information).
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*+ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, President and Director of
the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President Northgate Village Development Corporation; General
John R. Wood and Partner or Trustee in private real estate ventures in
Associates, Inc., Southwest Florida; Director, Trustee, or Managing General
Realtors Partner of the Funds; formerly, President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes,
Inc.
</TABLE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
J. Christopher Donahue* President President and Trustee, Federated Investors; Trustee and
Federated Investors Tower and Director President, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director and President, 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 Fund.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
Suite 1111 Montefiore Hospitals; Clinical Professor of Medicine and
3471 Fifth Avenue Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.+ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General Partner
of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee or Managing General Partner
Boston, MA of the Funds; formerly, President, State Street Bank and
Trust Company and State Street Boston Corporation; and
Trustee, Lahey Clinic Foundation, Inc.;
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
</TABLE>
<TABLE>
<CAPTION>
POSITION WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral Trustee, Carnegie Endowment for International Peace, RAND
of Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Center;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
& Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.; President
Pittsburgh, PA or Vice President of the Funds; Director or Trustee of some
of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated In-
Federated Investors Tower and Treasurer vestors; Vice President and Treasurer, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Executive Vice
President, Treasurer, and Director, Federated Securities
Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee of some of the Funds;
Vice President and Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower Federated Investors; Vice President, Secretary, and Trustee,
Pittsburgh, PA Federated Adviser, Federated Management, and Federated
Research; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Executive Vice
President and Director, Federated Securities Corp.; Vice
President and Secretary of the Funds.
</TABLE>
*This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940, as amended.
+Members of the Fund's Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers (the "Adviser"), 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 based on the Fund's average daily net assets as shown on the chart
below, plus 4.5% of the Fund's gross income (excluding any capital gains or
losses).
<TABLE>
<CAPTION>
% OF AVERAGE
AVERAGE DAILY NET ASSETS DAILY NET ASSETS
<S> <C>
First $500 million .25 of 1%
Second $500 million .225 of 1%
Over $1 billion .20 of 1%
</TABLE>
The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver at
any time at its sole discretion. The Adviser has also undertaken to reimburse
the Fund for operating expenses in excess of limitations established by certain
states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors is
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's portfolio manager since February, 1987.
Mr. Madich joined Federated Investors in 1984 and has been a Senior Vice
President of the Fund's investment adviser since 1993. Mr. Madich served as
a Vice President of the Fund's investment adviser from 1988 until 1993. Mr.
Madich is a Chartered Financial Analyst and received his M.B.A. in Public
Finance from the University of Pittsburgh.
Kathleen M. Foody-Malus has been the Fund's co-portfolio manager since
July, 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.
DISTRIBUTION OF CLASS B SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Shares purchased by their clients or customers. These payments will be made
directly by the distributor from its assets, and will not be made from the
assets of the Fund.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
Class B Shares will pay to the distributor an amount computed at an annual rate
of .75% of the average daily net assets of Class B Shares to finance any
activity which is principally intended to result in the sale of Class B Shares
subject to the Distribution Plan.
Because distribution fees to be paid by the Fund to the distributor may not
exceed an annual rate of .75% of the Class B Shares' average daily net assets,
it will take the distributor a number of years to recoup the expenses it has
incurred for its distribution and distribution-related services pursuant to the
Plan.
The Distribution Plan is a compensation type Plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of Class B Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("Shareholder
Services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the distribution plan, certain financial
institutions may be compensated by the adviser or its affiliates for the
continuing investment of customer's assets in certain funds, including the Fund,
advised by those entities. These payments will be made directly to the
distributor or adviser from their assets, and will not be made from the assets
of the Fund or by the assessment of a sales load on shares. 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 or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604, is transfer agent for shares of the
Fund and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, L.L.P., 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Directors.
EXPENSES OF THE FUND AND CLASS B SHARES
Holders of Shares pay their allocable portion of Fund and portfolio expenses.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Fund and continuing
its existence; registering the Fund with Federal and state securities
authorities; Directors fees; auditors' fees; the cost of meetings of Directors;
legal fees of the Fund; association membership dues and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the portfolio and Shares of the
portfolio; investment advisory services; taxes and commissions; custodian fees;
insurance premiums; auditors' fees; and such non-recurring and extraordinary
items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as a
class are expenses under the Fund's Shareholder Services Plan and Distribution
Plan. However, the Directors reserve the right to allocate certain other
expenses to holders of Shares as it deems appropriate ("Class Expenses"). In any
case, Class Expenses would be limited to: distribution fees; transfer agent fees
as identified by the transfer agent as attributable to holders of Shares; fees
under the Fund's Shareholder Services Plan; printing and postage expenses
related to preparing and distributing materials such as shareholder reports,
prospectuses and proxies to current shareholders; registration fees paid to the
Securities and Exchange Commission and to state securities commissions; expenses
related to administrative personnel and services as required to support holders
of Shares; legal fees relating solely to Shares; and Directors' fees incurred as
a result of issues relating solely to Shares.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholders for vote. All shares of each portfolio or
class in the Fund have equal voting rights, except that in matters affecting
only a particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
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 the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
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 for Class B
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class B Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class B Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
B Shares over a thirty-day period by the maximum offering price per share of
Class B Shares on the last day of the period. This number is then annualized
using semi-annual compounding. The yield does not necessarily reflect income
actually
earned by Class B Shares and, therefore, may not correlate to the dividends or
other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the contingent deferred sales charge, which, if excluded, would increase the
total return and yield.
Total return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Because Class B Shares and Class C Shares are
subject to Rule 12b-1 fees and additional Shareholder Services fees, the yield
for Class A Shares, for the same period, may exceed that of Class B Shares and
Class C Shares. Depending on the dollar amount invested, and the time period for
which any particular class of shares is held, the total return for any
particular class may exceed that of another.
From time to time Fund may advertise the performance of Class A Shares, Class B
Shares, and Class C Shares using certain financial publications and/or compare
the performance of Class A Shares, Class B Shares and Class C Shares to certain
indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund presently offers Class A Shares, Class B Shares, and Class C Shares.
Class A Shares are sold primarily to customers of financial institutions subject
to a front-end sales load of up to 4.50%. Under certain circumstances, investors
may qualify for reduced sales loads on purchases of Class A Shares. The Fund has
also adopted a Shareholder Services fee of up to 0.25 of 1% of the Class A
Shares' average daily net assets with respect to Class A Shares to obtain
certain personal and shareholder account services. Investments in Class A Shares
are subject to a minimum initial investment of $500, unless the investment is in
a retirement account, in which case the minimum investment is $50. Class A
Shares are not distributed pursuant to a Rule 12b-1 Plan, and therefore are not
subject to a distribution services fee.
Class C Shares are sold primarily to customers of financial institutions at net
asset value with no initial sales load. Investments in Class C Shares are
distributed pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the
distributor is paid a fee of up to .75 of 1%, in addition to a Shareholder
Services fee of up to 0.25 of 1% of the Class C Shares' average daily net
assets. Investments in Class C Shares are subject to a minimum initial
investment of $1,500, unless the investment is in a retirement account, in which
case the minimum investment is $50.
The amount of dividends payable to Class A Shares will generally exceed that of
Class B Shares and Class C Shares by the difference between Class Expenses borne
by shares of each respective class.
The stated advisory fee is the same for all three classes of shares.
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent public auditors. Their report dated May 13, 1994 on the Fund's
financial statements for the year ended March 31, 1994 is included in the Annual
Report dated March 31, 1994, which is incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.54
- ---------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.54
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.63)
- --------------------------------------------------------------------------------------------------- ---------------
Total from investment operations (0.09)
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.54)
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)***
- --------------------------------------------------------------------------------------------------- ---------------
Total distributions (0.56)
- --------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 7.89
- --------------------------------------------------------------------------------------------------- ---------------
TOTAL RETURN** (1.17)%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 1.81%(a)
- ---------------------------------------------------------------------------------------------------
Net investment income 6.45%(a)
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement --
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $103,433
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 149 %
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 26, 1993 (date of initial
public offering) to March 31, 1994.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
*** Distributions in excess of net investment income were the result of certain
book and tax timing differences. This distribution does not represent a
return of capital for federal income tax purposes.
(a) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
Annual Report dated March 31, 1994, which can be obtained free of charge.
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's public
independent public auditors. Their report dated May 13, 1994 on the Fund's
financial statements for each of the ten years for the period ended March 31,
1994 is included in the Annual Report dated March 31, 1994, which is
incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77 $ 8.37 $ 7.74
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.63 0.71 0.75 0.77 0.78 0.76 0.78 0.80 0.93 0.74
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.61) (0.03) 0.08 0.19 0.21 (0.40) (0.15) (0.21) 0.46 0.64
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total from
investment
operations 0.02 0.68 0.83 0.96 0.99 0.36 0.63 0.59 1.39 1.38
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.63) (0.69) (0.73) (0.78) (0.77) (0.76) (0.78) (0.80) (0.99) (0.75)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END
OF PERIOD $ 7.89 $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77 $ 8.37
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN** 0.13% 8.31% 10.20% 12.12% 12.59% 4.47% 7.66% 7.23% 17.42% 18.39%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.88% 0.83% 0.91% 0.97% 0.96% 0.96% 0.96% 0.95% 0.91% 0.89%(a)
- --------------------
Net investment
income 7.50% 8.33% 8.69% 9.21% 9.32% 9.22% 9.31% 9.24% 10.51% 12.11%(a)
- --------------------
Expense waiver/
reimbursement -- -- -- -- 0.04% -- 0.01% 0.05% 0.13% 0.55%(a)
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period
(000 omitted) $1,693,293 $1,844,712 $1,384,117 $1,133,017 $1,039,493 $1,054,055 $1,150,395 $1,193,389 $761,290 $156,834
- --------------------
Portfolio turnover
rate 149% 52% 43% 27% 98% 83% 72% 135% 179% 121%
- --------------------
<CAPTION>
JUNE 30,
1984
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.45
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.92
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.72)
- -------------------- -----------
Total from
investment
operations 0.20
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.91)
- -------------------- -----------
NET ASSET VALUE, END
OF PERIOD $ 7.74
- -------------------- -----------
TOTAL RETURN** 2.27%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 1.15%
- --------------------
Net investment
income 11.16%
- --------------------
Expense waiver/
reimbursement 0.24 %
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period
(000 omitted) $47,215
- --------------------
Portfolio turnover
rate 117 %
- --------------------
</TABLE>
* For the nine months ended March 31, 1985. The Fund changed its fiscal
year-end from June 30 to March 31, effective March 1, 1985.
**Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b)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 dated, March 31, 1994 which can be obtained free of charge.
FUND FOR U.S. GOVERNMENT
SECURITIES, INC.
CLASS B SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
July 31, 1994
[logo] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
360799407
8062807A-B (7/94)
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
CLASS C SHARES
PROSPECTUS
The Class C Shares of Fund For U.S. Government Securities, Inc., (the "Fund")
represent interests in an open-end, diversified management investment company (a
mutual fund) that seeks current income by investing in a professionally managed,
diversified portfolio limited to U.S. government securities.
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
GOVERNMENT 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 Class C Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class B Shares and Class C Shares, dated July 31, 1994, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information, or 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 July 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS C SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
LIBERTY FAMILY OF FUNDS 3
- ------------------------------------------------------
Liberty Family Retirement Program 4
INVESTMENT INFORMATION 5
- ------------------------------------------------------
Investment Objective 5
Investment Policies 5
Acceptable Investments 5
Collateralized Mortgage Obligations 5
Repurchase Agreements 7
When-Issued and Delayed Delivery
Transactions 7
Lending of Portfolio Securities 7
Portfolio Turnover 7
Investment Limitations 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN CLASS C SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through a Financial Institution 8
Directly from the Distributor 8
Minimum Investment Required 9
What Shares Cost 9
Systematic Investment Program 9
Certificates and Confirmations 9
Dividends and Distributions 9
Retirement Plans 10
EXCHANGE PRIVILEGE 10
- ------------------------------------------------------
Requirements for Exchange 10
Tax Consequences 10
Making an Exchange 10
Telephone Instructions 11
REDEEMING CLASS C SHARES 11
- ------------------------------------------------------
Through a Financial Institution 11
Directly from the Fund 11
By Telephone 11
By Mail 12
Signatures 12
Contingent Deferred Sales Charge 12
Systematic Withdrawal Program 13
Accounts with Low Balances 13
FUND INFORMATION 14
- ------------------------------------------------------
Management of the Fund 14
Board of Directors 14
Officers and Directors 14
Investment Adviser 17
Advisory Fees 17
Adviser's Background 17
Distribution of Class C Shares 18
Distribution and Shareholder
Services Plans 18
Other Payments to Financial
Institutions 19
Administration of the Fund 19
Administrative Services 19
Custodian 19
Transfer Agent and
Dividend Disbursing Agent 20
Legal Counsel 20
Independent Auditors 20
Brokerage Transactions 20
Expenses of the Fund and Class C Shares 20
SHAREHOLDER INFORMATION 21
- ------------------------------------------------------
Voting Rights 21
TAX INFORMATION 22
- ------------------------------------------------------
Federal Income Tax 21
Pennsylvania Corporate and
Personal Property Taxes 21
PERFORMANCE INFORMATION 22
- ------------------------------------------------------
OTHER CLASSES OF SHARES 22
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
CLASS A SHARES 24
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds as applicable) (1)............................................................... 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable)........................................ None
Exchange Fee.............................................................................................. None
ANNUAL CLASS C SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee............................................................................................ 0.60%
12b-1 Fee................................................................................................. 0.75%
Total Other Expenses...................................................................................... 0.46%
Shareholder Services Fee.................................................................. 0.25%
Total Class C Shares Operating Expenses......................................................... 1.81%
</TABLE>
- ---------
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of Shares redeemed within
one year of their purchase date. For a more complete description, see
"Redeeming Class C Shares."
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS C SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "INVESTING IN CLASS C SHARES" AND "FUND INFORMATION."
Wire transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales loads permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period................................................................ $ 29 $ 57 $ 98 $ 213
You would pay the following expenses on the same investment, assuming
no redemption......................................................... $ 18 $ 57 $ 98 $ 213
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only
to Class C Shares of the Fund. The Fund also offers two additional classes of
shares called Class A Shares and Class B Shares. Class C Shares, Class A Shares
and Class B Shares are subject to certain of the same expenses; however, Class A
Shares are subject to a maximum sales load of 4.50%, but are not subject to a
12b-1 fee or a contingent deferred sales charge. Class B Shares are subject to a
12b-1 fee of up to 0.75% and a maximum contingent deferred sales charge of
5.00%, but are not subject to a sales load. See "Other Classes of Shares."
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent public auditors. Their report dated May 13, 1994 on the Fund's
financial statements for the year ended March 31, 1994 is included in the Annual
Report dated March 31, 1994, which is incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.54
- ---------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------
Net investment income 0.54
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.63)
- --------------------------------------------------------------------------------------------------- ---------------
Total from investment operations (0.09)
- ---------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.54)
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.02)***
- --------------------------------------------------------------------------------------------------- ---------------
Total distributions (0.56)
- --------------------------------------------------------------------------------------------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 7.89
- --------------------------------------------------------------------------------------------------- ---------------
TOTAL RETURN** (1.17)%
- ---------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------------
Expenses 1.81%(a)
- ---------------------------------------------------------------------------------------------------
Net investment income 6.45%(a)
- ---------------------------------------------------------------------------------------------------
Expense waiver/reimbursement --
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $103,433
- ---------------------------------------------------------------------------------------------------
Portfolio turnover rate 149%
- ---------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 26, 1993 (date of initial
public offering) to March 31, 1994.
** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
*** Distributions in excess of net investment income were the result of certain
book and tax timing differences. This distribution does not represent a
return of capital for federal income tax purposes.
(a) Computed on an annualized basis.
Further information about the Fund's performance is contained in the Fund's
Annual Report dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on June 9,
1969. The Fund's address is Liberty Center, Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779. The Articles of Incorporation permit the
Fund to offer separate series of shares of beneficial interest representing
interests in separate portfolios of securities. The shares in any one portfolio
may be offered in separate classes. With respect to this Fund, as of the date of
this prospectus, the Board of Directors ("Directors") have established three
classes of shares, known as Class A Shares, Class B Shares and Class C Shares.
This prospectus relates only to Class C Shares ("Shares") of the Fund.
Class C Shares of the Fund are designed for individuals and institutions seeking
current income through a professionally managed, diversified portfolio of
securities which are guaranteed as to the payment of principal and interest by
the U.S. government, its agencies or instrumentalities. A minimum initial
investment of $1,500 is required, unless the investment is in a retirement
account, in which case the minimum investment is $50.
Class C Shares are sold at net asset value. A contingent deferred sales charge
of 1.00% will be charged on assets redeemed within the first 12 months following
purchase.
LIBERTY FAMILY OF FUNDS
- --------------------------------------------------------------------------------
This Fund is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:
American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
International Equity Fund, providing long-term capital growth and income
through international securities;
International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;
Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;
Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;
Tax-Free Instruments Trust, providing current income consistent with
stability of principal and exempt from federal income tax, through
high-quality, short-term municipal securities; and
World Utility Fund, providing total return primarily through securities
issued by domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles and by providing the
investment services of proven, professional investment advisers.
LIBERTY FAMILY RETIREMENT PROGRAM
The Fund is also a member of the Liberty Family Retirement Program (the
"Program"), an integrated program of investment options, plan recordkeeping, and
consultation services for 401(k) and other participant-directed benefit and
savings plans. Under the Program, employers or plan trustees may select a group
of investment options to be offered in a plan which also uses the Program for
recordkeeping and administrative services. Additional fees are charged to
participating plans for these services. As part of the Program, exchanges may
readily be made between investment options selected by the employer or a plan
trustee.
The other funds participating in the Liberty Family Retirement Program are:
American Leaders Fund, Inc., Capital Growth Fund, Stock and Bond Fund, Inc.,
International Equity Fund, International Income Fund, Liberty Equity Income
Fund, Inc., Liberty High Income Bond Fund, Inc., Liberty Utility Fund, Inc., and
Prime Cash Series. Plans with over $1 million invested in funds available in the
Liberty Family Retirement Program may purchase Class A Shares without a sales
load.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income. While there
is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus. The investment objective and the policies and limitations described
below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Fund invests only in securities which are primary
or direct obligations of the U.S. government, or its agencies or
instrumentalities; or which are guaranteed by the U.S. government, its agencies,
or instrumentalities and in certain collateralized mortgage obligations
("CMOs"), described below.
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
obligations of U.S. government agencies or instrumentalities such as
Federal Land Banks, Farmers Home Administration, Federal Home Loan Banks,
Federal Intermediate Credit Banks, Central Bank for Cooperatives, and
Federal National Mortgage Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
There is no limit to portfolio maturity. The prices of government bonds
fluctuate inversely in relation to the direction of interest rates. The prices
of longer term bonds fluctuate more widely in response to market interest rate
changes.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations are
debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or
Freddie Mac Certificates, but also may be collateralized by whole loans or
Private Pass-Throughs (such collateral collectively hereinafter referred to as
"Mortgage Assets"). Multiclass pass-through securities are equity interests in a
trust composed of Mortgage Assets. Unless the context indicates otherwise, all
references herein to CMOs include multiclass pass-through securities. Payments
of principal of and interest on the Mortgage Assets, and any reinvestment income
thereon, provide the funds to pay debt service on the CMOs or make scheduled
distributions on the
multiclass pass-through securities. CMOs in which the Fund invests are issued by
agencies or instrumentalities of the U.S. government. The issuer of a series of
CMOs may elect to be treated as a Real Estate Mortgage Investment Conduit (a
"REMIC"), which has certain special tax attributes.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specific fixed
or floating coupon rate and has a stated maturity or final distribution date.
Principal prepayments on the Mortgage Assets may cause the CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of the CMOs on a monthly, quarterly
or semi-annual basis. The principal of and interest on the Mortgage Assets may
be allocated among the several classes of a series of a CMO in innumerable ways.
In one structure, payments of principal, including any principal prepayments, on
the Mortgage Assets are applied to the classes of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of CMOs until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
CMOs that include a class bearing a floating rate of interest also may include a
class whose yield floats inversely against a specified index rate. These
"inverse floaters" are more volatile than conventional fixed or floating rate
classes of a CMO and the yield thereon, as well as the value thereof, will
fluctuate in inverse proportion to changes in the index on which interest rate
adjustments are based. As a result, the yield on an inverse floater class of a
CMO will generally increase when market yields (as reflected by the index)
decrease and increase when market yields decrease. The extent of the volatility
of inverse floaters depends on the extent of anticipated changes in market rates
of interest. Generally, inverse floaters provide for interest rate adjustments
based upon a multiple of the specified interest index, which further increases
their volatility. The degree of additional volatility will be directly
proportional to the size of the multiple used in determining interest rate
adjustments.
Because the mortgages underlying mortgage-backed securities often may be prepaid
without penalty or premium, mortgage-backed securities are generally subject to
higher prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Depending upon market conditions,
the yield that the Fund receives from the reinvestment of such prepayments, or
any scheduled principal payments, may be lower than the yield on the original
mortgage security. As a consequence, mortgage securities may be a less effective
means of "locking in" interest rates than other types of debt securities having
the same stated maturity and may also have less potential for capital
appreciation. For certain types of asset pools, such as collateralized mortgage
obligations, prepayments may be allocated to one tranche of securities ahead of
other tranches, in order to reduce the risk of prepayment for the other
tranches.
Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their stated
principal amount. Conversely, the prepayment of mortgage securities purchased at
a market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as ordinary
income when distributed to the shareholders.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Fund invests
may be purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government or other securities to the Fund and agree at
the time of sale to repurchase them at a mutually agreed upon time and price.
As a matter of investment practice which can be changed without shareholder
approval, the Fund will not invest more than 10% of its total assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
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 Board of Directors and will receive collateral equal to at least
100% of the value of the securities loaned in the form of cash or U.S.
government securities.
PORTFOLIO TURNOVER. Securities in the Fund's portfolio will be sold whenever
the Fund's investment adviser believes it is appropriate to do so in light of
the Fund's investment objective, without regard to the length of time a
particular security may have been held. The adviser to the Fund does not
anticipate that portfolio turnover will result in adverse tax consequences. Any
such trading will increase the Fund's portfolio turnover rate and transaction
costs.
INVESTMENT LIMITATIONS
The Fund will not borrow money except, under certain circumstances, the Fund may
borrow up to 10% of the value of its total assets.
The following limitation 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 own securities of open-end or closed-end investment companies,
except under certain circumstances and subject to certain limitations not
exceeding 10% of its net assets.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. The net asset value for Shares
is determined by adding the interest of Class C Shares in the market value of
all securities and other assets of the Fund, subtracting the interest of Class C
Shares in the liabilities of the Fund and those attributable to Class C Shares,
and dividing the remainder by the total number of Class C Shares outstanding.
The net asset value for Class A Shares and Class B Shares may differ from that
of Class C Shares due to the variance
in daily net income realized by each class. Such variance will reflect only
accrued net income to which the shareholders of a particular class are entitled.
INVESTING IN CLASS C SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Shares,
Federated Securities Corp. may, from time to time, offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
Participants in plans under the Liberty Family Retirement Program shall purchase
Shares in accordance with the requirements of their respective plans.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Other Payments to Financial Institutions").
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from Federated Securities Corp. once an account has been
established. To do so:
complete and sign the new account form available from the Fund;
enclose a check made payable to Fund for U.S. Government Securities,
Inc.--Class C Shares; and
mail both to Federated Services Company, P.O. Box 8604 , Boston,
Massachusetts 02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire once an account has
been established, call the Fund. All information needed will be taken over the
telephone, and the order is considered received
when State Street Bank receives payment by wire. Federal funds should be wired
as follows: Federated Services Company, c/o State Street Bank and Trust Company,
Boston, Massachusetts 02105; Attention: Mutual Fund Servicing Division; For
Credit to: Fund for U.S. Government Securities, Inc.--Class C Shares; Title or
Name of Account; Wire Order Number and/or Account Number. Shares cannot be
purchased by wire on Columbus Day, Veteran's Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Class C Shares 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. (Other minimum
investment requirements may apply to investments through the Liberty Family
Retirement Program.)
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The net asset value is determined at 4:00 p.m. (Eastern time), Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; or (iii) the following
holidays: New Year's Day, Presidents's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the Fund. A shareholder may apply for participation in this program
through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
in writing to Federated Services Company.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
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. Dividends are automatically
reinvested in additional Shares on payment dates at the ex-dividend date net
asset value without a sales load, unless shareholders request cash payments on
the new account form or by writing to the transfer agent. All shareholders on
the record date are entitled to the dividend. If Shares are redeemed or
exchanged prior to the record date or purchased after the record date, those
Shares are not entitled to that month's dividend.
RETIREMENT PLANS. Shares of the Fund can be purchased as an investment for
retirement plans or for IRA accounts. For further details, including prototype
retirement plans, contact the Fund and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund Shareholders whose investment
objectives have changed, Class C shareholders may exchange all or some of their
Shares for Class C Shares in other funds in the Liberty Family of Funds at net
asset value without a contingent deferred sales charge. Participants in a plan
under the Liberty Family Retirement Program may exchange some or all of their
Shares for Class C Shares of other funds offered under their plan at net asset
value without a contingent deferred sales charge. Any contingent deferred sales
charge charged at the time exchanged-for Shares are redeemed is calculated as if
the shareholder had held the Shares from the date on which he or she became a
shareholder of the exchanged-from Shares. For more information, see "Contingent
Deferred Sales Charge."
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the minimum investment requirement of the Fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Class C Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Fund may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, P.O. Box 8604, Boston, Massachusetts 02266-8604.
Instructions for exchanges for the Liberty Family Retirement Program should be
given to the plan administrator.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Fund. If the instructions are given by a broker, a telephone
authorization form completed by the broker must be on file with the Fund. Shares
may be exchanged between two funds by telephone only if the two funds have
identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts,
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone exchange instructions may be recorded. Such instructions will be
processed as of 4:00 p.m. (Eastern time) and must be received by the Fund before
that time for Shares to be exchanged the same day. Shareholders exchanging into
a Fund will not receive any dividend that is payable to shareholders of record
on that date. This privilege may be modified or terminated at any time. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
REDEEMING CLASS C SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value, less any applicable contingent
deferred sales charge next determined after the Fund receives the redemption
request. Redemptions will be made on days on which the Fund computes its net
asset value. Redemptions can be made through a financial institution or directly
from the Fund. Redemption requests must be received in proper form. Redemptions
of Shares held through the Liberty Family Retirement Program will be governed by
the requirements of the respective plans.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value, less any applicable contingent deferred sales charge,
next determined after the Fund receives the redemption request from the
financial institution. Redemption requests through a registered broker/dealer
must be received by the broker before 4:00 p.m. (Eastern time) and must be
transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. Redemption requests
through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased Shares through a financial
institution may redeem their Shares by telephoning the Fund. Telephone
redemption instructions may be recorded. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. The
miminum amount for a wire transfer is $1,000. If at any time the Fund shall
determine it necessary to terminate or modify this method of redemption,
sharesholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty redeeming by telephone. If such a case should occur, another method
of redemption should be considered.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The
written request should include the shareholder's name, the Fund name and class
designation, the account number, and the Share or dollar amount requested, and
should be signed exactly as the Shares are registered.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares will be charged a contingent deferred sales
charge by Federated Securities Corp. of 1.00% for redemptions of those Shares
made within one year from date of purchase. To the extent that a shareholder
exchanges between or among Class C Shares in other funds in the Liberty Family
of Funds, the time for which the exchanged-for shares were held will be added,
or "tacked," to the time for which the exchanged-from shares were held for
purposes of satisfying the one-year holding period. The contingent deferred
sales charge will be calculated based upon the lesser
of the original purchase price of the Shares or the net asset value of the
Shares when redeemed. For additional information, see "Other Payments to
Financial Institutions."
The contingent deferred sales charge will not be imposed on Shares acquired
through reinvestment of dividends or distributions of short-term or long-term
capital gains. Redemptions are deemed to have occurred in the following order:
(i) Shares acquired through the reinvestment of dividends and long-term capital
gains; (ii) purchases of Shares occurring more than one year before the date of
redemption; (iii) purchases of Shares within the previous year.
The contingent deferred sales charge will be 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 retirement 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 59-1/2; or (iii) from the death or permanent and
total disability of the beneficial owner. The exemption from the contingent
deferred sales charge 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.
A contingent deferred sales charge will not be charged in connection with
exchanges of Shares for Class C Shares in other Liberty Family Funds or Liberty
Family Retirement Program funds or in connection with redemptions by the Fund of
accounts with low balances. No conginent deferred sales charge will be imposed
on shares purchased through a bank trust department, an investment adviser or a
retirement plan where the third party administrator has entered into certain
arrangements with Federated Securities Corp. to the extent that no payments were
advanced for purchases made through such entities. No contingent deferred sales
charge will be charged for redemptions from the Liberty Family Retirement
Program. For additional information, see "Other Payments to Financial
Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$1,500. This requirement does not apply, however, if the balance falls below
$1,500 because of changes in the Fund's net asset value. Before Shares are
redeemed to close an account, the shareholder is notified in writing and allowed
30 days to purchase additional Shares to meet the minimum requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
OFFICERS AND DIRECTORS. Officers and Directors are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Advisers, Federated Investors, Federated Services Company, Federated
Securities Corp., Federated Administrative Services, and the Funds (as defined
in the Combined Statement of Additional Information).
<TABLE>
<CAPTION>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, President and Director of
the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood and General Partner or Trustee in private real estate ventures
Associates, Inc., in Southwest Florida; Director, Trustee, or Managing General
Realtors Partner of the Funds; formerly, President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Director Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC Bank
Pittsburgh, PA N.A. and PNC Bank Corp., and Director, Ryan Homes, Inc.
J. Christopher Donahue* President President and Trustee, Federated Investors; Trustee and
Federated Investors Tower and Director President, Federated Advisers, Federated Management, and
Pittsburgh,PA Federated Research; Director and President, 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 Fund.
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Funds;
Concord, MA formerly, Director, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and
Suite 1111 Montefiore Hospitals; Clinical Professor of Medicine and
3471 Fifth Avenue Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General Partner
of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Trustee, Lahey Clinic Foundation, Inc.;
Boston, MA Director, Trustee, or Managing General Partner of the Funds;
formerly, President, State Street Bank & Trust Company and
State Street Boston Corporation.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral Trustee, Carnegie Endowment for International Peace, RAND
of Learning Corporation; Online Computer Library Center, Inc.; and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Center;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.; President
Pittsburgh, PA or Vice President of the Funds; Director or Trustee of some
of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors;
Federated Investors Tower and Treasurer Vice President and Treasurer, Federated Advisers, Federated
Pittsburgh, PA Management, and Federated Research; Executive Vice
President, Treasurer, and Director, Federated Securities
Corp.; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee, Federated Services
Company; Trustee of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary, and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and Federated
Research; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Trustee, Federated
Services Company; Executive Vice President and Director,
Federated Securities Corp.; Vice President and Secretary of
the Funds.
</TABLE>
* This Director is deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940, as amended.
\ Members of the Fund's Executive Committee. The Executive Committee of the
Board of Directors handles the responsibilities of the Board of Directors
between meetings of the Board.
Officers and Directors own less than 1% of the Fund's outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers (the "Adviser"), 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 based on the Fund's average daily nest assets as shown on the chart
below, plus 4.5% of the Fund's gross income (excluding any capital gains or
losses).
<TABLE>
<CAPTION>
ADVISORY FEE AS
% OF AVERAGE
AVERAGE DAILY NET ASSETS DAILY NET ASSETS
<S> <C>
First $500 million 0.25 of 1%
Second $500 million 0.225 of 1%
Over $l billion 0.20 of 1%
</TABLE>
The Adviser may choose to voluntarily waive a portion of its fee or
reimburse the Fund for certain operating expenses. The Adviser can
terminate this voluntary waiver at any time at its sole discretion. The
Adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors is
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's co-portfolio manager since February,
1987. Mr. Madich joined Federated Investors in 1984 and has been a Senior
Vice President of the Fund's investment
adviser since 1993. Mr. Madich served as a Vice President of the Fund's
investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Kathleen M. Foody-Malus has been the Fund's co-portfolio manager since
July, 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.
DISTRIBUTION OF CLASS C SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
The distributor may offer to pay financial institutions an amount equal to 1% of
the net asset value of Shares purchased by their clients or customers at the
time of purchase (except for participants in the Liberty Family Retirement
Program). These payments will be made directly by the distributor from its
assets, and will not be made from assets of the Fund. Financial institutions may
elect to waive the initial payment described above; such waiver will result in
the waiver by the Fund of the otherwise applicable contingent deferred sales
charge.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Class C Shares will pay to the distributor an amount, computed at an annual
rate of .75 of 1% of the average daily net assets of the Class C Shares to
finance any activity which is principally intended to result in the sale of
shares subject to the Distribution Plan. The distributor may select financial
institutions such as banks, fiduciaries, custodians for public funds, investment
advisers, and broker/dealers to provide sales support services as agents for
their clients or customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net assets of the Class C Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select Financial Institutions to perform shareholder services. Financial
Institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _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 or marketing support furnished by
the financial institution. Any payment made by the distributor may be reimbursed
by the Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administative fee received during any fiscal year shall be at least $125,000
per portfolio and $30,000 per each additional class of shares. Federated
Administrative Services may choose voluntarily to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, P.O.
Box 8604, Boston, Massachusetts, 02266-8604, is transfer agent for the shares of
the Fund and dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, L.L.P., 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling Shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Board of Directors.
EXPENSES OF THE FUND AND CLASS C SHARES
Holders of Shares pay their allocable portion of Fund and portfolio expenses.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Fund and continuing
its existence; registering the Fund with federal and state securities
authorities; Directors' fees; auditors' fees; the cost of meetings of Directors;
legal fees of the Fund; association membership dues and such non-recurring and
extraordinary items as may arise from time to time.
The portfolio expenses for which holders of Shares each pay their allocable
portion include, but are not limited to: registering the portfolio and Shares of
the portfolio; investment advisory services; taxes and commissions; custodian
fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.
At present, the only expenses which are allocated specifically to Shares as a
class are expenses under the Fund's Distribution Plan. However, the Directors
reserve the right to allocate certain expenses to holders of Shares as it deems
appropriate ("Class Expenses"). In any case, Class Expenses would be limited to:
distribution fees; transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; fees under the Fund's Shareholder Services
Plan; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the Securities and Exchange Commission
and to state securities commissions; expenses related to administrative
personnel and services as required to support holders of Shares; legal fees
relating solely to Shares; and Directors' fees incurred as a result of issues
relating solely to Shares.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Director elections and other
matters submitted to shareholder vote. All shares of each portfolio or class in
the fund have equal voting rights, except that in matters affecting only a
particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
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 the shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
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 for Class C
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Class C Shares after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Class C Shares is calculated by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by Class
C Shares over a thirty-day period by the maximum offering price per share of
Class C Shares 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 Class C Shares and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
The performance information reflects the effect of non-recurring charges, such
as the contingent deferred sales charge, which, if excluded, would increase the
total return and yield.
Total Return and yield will be calculated separately for Class A Shares, Class B
Shares, and Class C Shares. Because Class B Shares and Class C Shares are
subject to Rule 12b-l fees and Shareholder Services fees, the yield for Class A
Shares, for the same period, may exceed that of Class B Shares and Class C
Shares. Because Class A Shares are subject to a higher maximum sales load, the
total return for Class B Shares and Class C Shares, for the same period, may
exceed that of Class A Shares. Depending on the dollar amount invested, and the
time period for which any particular class of shares is held, the total return
for any particular class may exceed that of another.
From time to time the Fund may advertise the performance of Class A Shares,
Class B Shares, and Class C Shares using certain financial publications and/or
compare the performance of Class A Shares, Class B Shares, and Class C Shares to
certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund currently offers Class A Shares, Class B Shares and Class C Shares.
Class A Shares are primarily sold to customers of financial institutions subject
to a front-end sales load of up to 4.50%. The Fund has also adopted a
Shareholder Services fee of up to 0.25 of 1% of the Class A Shares' average
daily net assets with respect to Class A Shares. Class A Shares are subject to a
minimum initial investment of $500, unless the investment is in a retirement
account, in which case the minimum investment is $50. Class A Shares are not
distributed pursuant to a Rule 12b-1 Plan and therefore are not subject to a
distribution services fee.
Class B Shares are sold primarily to customers of financial institutions subject
to certain contingent deferred sales charges. Class B Shares are distributed
pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the distributor is
paid a fee of up to 0.75 of 1%. The Fund has also adopted a Shareholder Services
fee of up to 0.25 of 1% of the Class B Shares' average daily net assets with
respect to Class B Shares to obtain certain personal and shareholder account
services. Investments in Class B
Shares are subject to a minimum initial investment of $1,500, unless the
investment is in a retirement account in which case the minimum investment is
$50.
The amount of dividends payable to Class A Shares may exceed that of Class B
Shares and Class C Shares by the difference between Class Expenses and
distribution and shareholder service expenses borne by Shares of each respective
class.
The stated advisory fee is the same for all three classes of Shares.
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Deloitte & Touche, the Fund's
independent public auditors. Their report dated May 13, 1994 on the Fund's
financial statements for each of the ten years for the period ended March 31,
1994 is included in the Annual Report dated March 31, 1994, which is
incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
NET ASSET VALUE,
BEGINNING OF PERIOD $8.50 $8.51 $8.41 $8.23 $8.01 $8.41 $8.56 $8.77 $8.37 $ 7.74
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.63 0.71 0.75 0.77 0.78 0.76 0.78 0.80 0.93 0.74
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.61) (0.03) 0.08 0.19 0.21 (0.40) (0.15) (0.21) 0.46 0.64
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
Total from
investment
operations 0.02 0.68 0.83 0.96 0.99 0.36 0.63 0.59 1.39 1.38
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.63) (0.69) (0.73) (0.78) (0.77) (0.76) (0.78) (0.80) (0.99) (0.75)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
NET ASSET VALUE, END
OF PERIOD $7.89 $8.50 $8.51 $8.41 $8.23 $8.01 $8.41 $8.56 $8.77 $ 8.37
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- -----------
TOTAL RETURN** 0.13% 8.31% 10.20% 12.12% 12.59% 4.47% 7.66% 7.23% 17.42% 18.39%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.88% 0.83% 0.91% 0.97% 0.96% 0.96% 0.96% 0.95% 0.91% 0.89%(a)
- --------------------
Net investment
income 7.50% 8.33% 8.69% 9.21% 9.32% 9.22% 9.31% 9.24% 10.51% 12.11%(a)
- --------------------
Expense waiver/
reimbursement -- -- -- -- 0.04% -- 0.01% 0.05% 0.13% 0.55%(a)
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period
(000 omitted $1,693,293 $1,844,712 $1,384,117 $1,133,017 $1,039,493 $1,054,055 $1,150,395 $1,193,389 $761,290 $156,834
- --------------------
Portfolio turnover
rate 149% 52% 43% 27% 98% 83% 72% 135% 179% 121%
- --------------------
<CAPTION>
JUNE 30,
<S> <C>
1984
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.45
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.92
- --------------------
Net realized and
unrealized
gain/(loss) on
investments (0.72)
- -------------------- -----------
Total from
investment
operations 0.20
- --------------------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.91)
- -------------------- -----------
NET ASSET VALUE, END
OF PERIOD $ 7.74
- -------------------- -----------
TOTAL RETURN** 2.27%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 1.15%
- --------------------
Net investment
income 11.16%
- --------------------
Expense waiver/
reimbursement 0.24 %
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period
(000 omitted) $47,215
- --------------------
Portfolio turnover
rate 117 %
- --------------------
</TABLE>
* For the nine months ended March 31, 1985. The Fund changed its fiscal
year-end from June 30 to March 31, effective March 1, 1985.
**Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b)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 dated, March 31, 1994 which can be obtained free of charge.
FUND FOR
U.S. GOVERNMENT
SECURITIES, INC.
CLASS C SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
July 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
360799209
8062807A-C (7/94)
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
CLASS A SHARES
CLASS B SHARES
CLASS C SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Class A Shares, Class B Shares and Class
C Shares of Fund for U.S. Government Securities, Inc. (the "Fund")
dated July 31, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus for any class, write or call the
Fund.
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Stripped Mortgage-Related Securities 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
Lending of Portfolio Securities 2
Portfolio Turnover 2
Investment Limitations 2
THE FUNDS 3
- ---------------------------------------------------------------
Fund Ownership 3
INVESTMENT ADVISORY SERVICES 3
- ---------------------------------------------------------------
Adviser to the Fund 3
Advisory Fees 4
ADMINISTRATIVE SERVICES 4
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 4
- ---------------------------------------------------------------
PURCHASING SHARES 4
- ---------------------------------------------------------------
Distribution of Shares 5
Distribution Plan (Class B and
Class C Shares Only)
and Shareholder Services Plans 5
Conversion to Federal Funds 5
Purchases by Sales Representatives, Fund
Directors, and Employees 5
DETERMINING NET ASSET VALUE 5
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 5
- ---------------------------------------------------------------
REDEEMING SHARES 6
- ---------------------------------------------------------------
TAX STATUS 6
- ---------------------------------------------------------------
The Fund's Tax Status 6
Shareholder's Tax Status 6
TOTAL RETURN 6
- ---------------------------------------------------------------
YIELD 7
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 7
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 8
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on June 9,
1969. On April 28, 1992, the shareholders of the Fund voted to permit the Fund
to offer separate series and classes of Shares. Shares of the Fund are offered
in three Classes, known as Class A Shares, Class B Shares, and Class C Shares
(individually, and collectively referred to as "Shares" as the context may
require). This statement of additional information relates to all three classes
of the above-mentioned Shares.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide 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 short-term
capital gains.
TYPES OF INVESTMENTS
The Fund invests only in U.S. government securities which are primary or direct
obligations of the U.S. government or its agencies or instrumentalities or which
are guaranteed by the U.S. government, its agencies or instrumentalities and in
certain collateralized mortgage obligations ("CMOs"). This investment policy and
the objective stated above cannot be changed without approval of shareholders.
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 arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. As a matter of investment practice which may be
changed without shareholder approval, settlement dates will occur within 120
days after entering into these transactions. The market values of the securities
purchased may vary from the purchase prices.
No fees or others expenses, other than normal transactions costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled. The Fund may
engage in these transactions to an extent that would cause the segregation of an
amount up to 20% of the total value of its assets.
REPURCHASE AGREEMENTS
Repurchase Agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or
certificates of deposit to the fund and agreed at the time of sale to repurchase
them at a mutually agreed upon time and price. The Fund or its custodian will
take possession of the securities subject to repurchase agreements, and these
securities will be marked to market daily. To the extent that the original
seller does not repurchase the securities from the Fund, the Fund could receive
less than the repurchase price on any sale of such securities. In the event that
such a defaulting seller filed for bankruptcy or became insolvent, disposition
of such securities by the Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody of the
Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow retention or
disposition of such securities. The Fund 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 Directors.
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 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.
PORTFOLIO TURNOVER
The Fund's policy of managing its portfolio of U.S. government securities,
including the sale of securities held for a short period of time, to achieve its
investment objective of current income may result in high 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 March 31, 1994,
1993, and 1992, the portfolio turnover rates were 149%, 52% and 43%,
respectively.
INVESTMENT LIMITATIONS
The Fund will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities. The Fund may purchase and
dispose of U.S. government securities and CMOs before they are issued and
may also purchase and dispose of them on a delayed delivery basis.
BORROWING MONEY
In extraordinary or emergency situations, the Fund may borrow amounts not
in excess of 10% of its total assets taken at cost.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate its securities.
INVESTING IN COMMODITIES AND MINERALS
The Fund will not purchase or sell commodities or commodity contracts.
UNDERWRITING
The Fund will not underwrite any issue of securities.
BUYING OR SELLING REAL ESTATE
The Fund will not buy or sell real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any 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 or Charter.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations become effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not own securities of open-end investment companies, own
more than 3% of the total outstanding voting stock of any closed-end
investment company, invest more than 5% of its total assets in any
closed-end investment company, or invest more than 10% of its total
assets in closed-end investment companies in general. The Fund will
purchase securities of closed-end investment companies only in open-
market transactions involving only customary broker's commissions.
However, these limitations are not applicable if the securities are
acquired in a merger, consolidation, or acquisition of assets. The Fund
will initially bear its proportionate share of any fees and expenses paid
by open-end Funds in addition to the fees and expenses payable directly
by the Fund.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS
OF THE FUND
The Fund will not purchase or retain the securities of any issuers if the
Officers and Directors of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
In order to comply with certain state restrictions, the Fund will not
invest in real estate limited partnerships or oil, gas, or mineral
leases.
The Fund did not borrow money in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so in
the coming fiscal year. The Fund does not intend to invest more than 5%
of the value of its total assets in inverse floaters or interest-only
mortgage-related securities in the coming fiscal year.
THE FUNDS
- --------------------------------------------------------------------------------
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priorty
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; Mark Twain
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
FUND OWNERSHIP
As of July 1, 1994, there were no shareholders of record who owned 5% or more of
the outstanding Class A Shares of the Fund.
Merrill Lynch Pierce Fenner & Smith (as record owner holding Class C shares for
its clients), Jacksonville, Florida, owned approximately 5,412,452 shares (42%)
of the Fund as of July 1, 1994.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the "Adviser"). 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, his wife, and his son, J. Christopher Donahue. John F. Donahue, is
Chairman and Trustee of Federated Advisers, Chairman and Trustee of Federated
Investors, and Chairman and Director of the Fund. J. Christopher Donahue is
President and Trustee of Federated Advisers, President and Trustee, Federated
Investors, President and Trustee, Federated Administrative Services, Trustee,
Federated Services Company and President and Director of the Fund. John W.
McGonigle is Vice President, Secretary and Trustee of Federated Advisers,
Trustee, Vice President, Secretary and General Counsel, Federated Investors,
Executive Vice President, Secretary and Trustee, Federated Administrative
Services, Trustee, Federated Services Company, Executive Vice President and
Director, Federated Securities Corp., and Vice President and Secretary of the
Fund.
The adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the respective prospectus for Class A Shares, Class
B Shares, and Class C Shares. During the fiscal years ended March 31, 1994, 1993
and 1992, the Fund's adviser earned $11,548,068, $10,204,383, and $8,308,696,
respectively.
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 as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For puposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as the "Administrators"). For the fiscal
years ended March 31, 1994, the Administrators collectively earned $1,358,170.
For the fiscal years ended March 31, 1993, and 1992, Federated Administrative
Services, Inc., earned $953,665, and $897,160, respectively. Dr. Henry J.
Gailliot, an officer of Federated Advisers, 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., and Federated
Administrative Services.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
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 relation 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 March 31, 1994, 1993 and 1992, the Fund paid no
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 Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the respective prospectus under "Investing in Class A
Shares," "Investing in Class B Shares," and "Investing in Class C Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares. For the
fiscal years ended March 31, 1994, 1993 and 1992, the distributor was paid
$3,894,642, $9,233,462 and $5,174,823, respectively. During the same periods,
the distributor retained $486,297, $974,516, and $742,252, respectively, after
dealer concessions.
DISTRIBUTION PLAN (CLASS B SHARES AND CLASS C SHARES ONLY) AND SHAREHOLDER
SERVICES PLANS
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services as appropriate, to stimulate
distribution activities and to cause services to be provided to shareholders by
a representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan (Class B Shares and Class C Shares only), the
Board of Directors expects that the Class B Shares and Class C Shares of the
Fund will be able to achieve a more predictable flow of cash for investment
purposes and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in pursuing its investment objectives. By
identifying potential investors whose needs are served by the Fund's objectives,
and properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ended March 31, 1994, payments in the amount of $454,806
were made pursuant to the Distribution Plan (Class C Shares only), all of which
was paid to the financial institutions. In addition, for this period, payments
in the amount of $1,399,399 were made pursuant to the Shareholder Services Plan
(Class A Shares and Class C Shares).
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated Advisers,
and Federated Securities Corp. or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp. and their spouses and
children under 21, may buy Class A shares at net asset value without a sales
load. Shares may also be sold without a sales load to trusts or pension or
profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the respective prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
Market values of the Fund's portfolio securities are determined as follows:
.according to the last sale price on a national securities exchange, if
available;
.in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices and for bonds and other fixed
income securities, as determined by an independent pricing service; or
.for short-term obligations according to the 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, or at
fair value as determined in good faith by the Board of Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider yield, quality, coupon
rate, maturity, type of issue, trading characteristics, and other market data.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value, less any
applicable contingent deferred sales charge, after the Fund receives the
redemption request. Redemption procedures are explained in the respective
prospectus under "Redeeming Class A Shares," "Redeeming Class B Shares," and
"Redeeming Class C Shares." Although the transfer agent 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.
Class B Shares redeemed within one to six years of purchase and Class C Shares,
redeemed within one year 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 financial institution for services rendered, and the length
of time the investor remains a shareholder in the Fund. Should financial
institutions elect to receive an amount less than the administrative fee that is
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.
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.
At March 31, 1994, the Fund had a capital loss carryforward of $86,702,357 for
federal income tax purposes which will reduce the Fund's taxable income arising
from future net realized gain on investments.
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
Fund shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's average annual total return for Class A Shares for the one-year,
five-year, and ten-year periods ended March 31, 1994, were (4.37%), 7.57%, and
8.65%, respectively.
The Fund's cumulative total return for Class C Shares for the period from April
26, 1993 (date of initial public offering) to March 31, 1994 was (2.17%).
The average annual total return for each class of Shares of the Fund is the
average compounded rate of return for a given period that would equate a $1,000
initial investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned at the
end of the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, less any applicable sales
load adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
Any applicable contingent deferred sales charge deducted from the ending value
of the investment based on the lesser of the original purchase price or the net
asset value of shares redeemed.
Cumulative total return reflects the Class C Shares' total performance over a
specific period of time. This total return assumes and is reduced by the payment
of the maximum sales load and contingent deferred sales charge, if applicable.
The Class C Investment Shares' total return is representative of only eleven
months of investment activity since the start of performance.
YIELD
- --------------------------------------------------------------------------------
The Fund's yields for Class A Shares and Class C Shares were 5.32% and 4.73%,
respectively, for the thirty-day period ended March 31, 1994.
The yield for each class of Shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by any class of Shares over a thirty-day period by the
maximum offering price per share of the respective class on the last day of the
period. This value is annualized using semi-annual compounding. This means that
the amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in any class
of Shares, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of each of the classes of Shares depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates and market value of portfolio securities;
.changes in the Fund's or any class of Shares' expenses; and
.various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
.LEHMAN BROTHERS GOVERNMENT (LT) INDEX, for example, is an index composed of
bonds issued by the U.S. government or its agencies which have at least $1
million outstanding in principal and which have maturities of ten years or
longer. Index figures are total return figures calculated monthly.
.SALOMON BROTHERS 15 YEAR MORTGAGE BACKED SECURITIES INDEX includes the average
of all 15 year mortgage securities which include Federal Home Loan Mortgage
Corp. (Freddie Mac), Federal National Mortgage Association (Fannie Mae), and
Government National Mortgage Association (GNMA).
.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. mortgage funds
category in advertising and sales literature.
.LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX is comprised of approximately
5,000 issues which include non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. Tracked by Shearson Lehman, the index has an average
maturity of nine years. It calculates total returns for one month, three month,
twelve month, and ten year periods, and year-to-date.
.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 any class of Shares 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 any
of the class of Shares based on monthly reinvestment of dividends over a
specified period of time.
From time to time as it deems appropriate, the Fund may advertise the
performance of any class of Shares using charts, graphs and descriptions,
compared to Federally insured bank products including certificates of deposit
and time deposits and to money market funds using the Lipper Analytical Services
money market instruments average. In addition, advertising and sales literature
for the Fund may use charts and graphs to illustrate the principals of
dollar-cost averaging and may disclose the amount of dividends paid by the Fund
over certain periods of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load on Class A Shares.
FINANCIAL STATEMENTS
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The Financial Statements for the fiscal year end March 31, 1994, are
incorporated herein by reference to the Annual Report of the Fund dated March
31, 1994; (File Nos. 2-33490 and 811-1890). A copy of this report may be
obtained without charge by contacting the Fund at the address listed in any of
the prospectuses.
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