Fund for U.S.
Government
Securities, Inc.
Select Shares
PROSPECTUS
The Select 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.
This prospectus contains the information you should read and know before you
invest in Select Shares of the Fund. Keep this prospectus for future reference.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
The Fund has also filed a Combined Statement of Additional Information for Class
A Shares, Class C Shares and Select Shares, dated January 15, 1993, with the
Securities and Exchange Commission. The information contained in the Combined
Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Combined Statement of Additional
Information free of charge by calling 1-800-235-4669. To obtain other
information or make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated January 15, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Repurchase Agreements 3
When-Issued and Delayed Delivery
Transactions 3
Lending of Portfolio Securities 3
Portfolio Turnover 3
Investment Limitations 4
NET ASSET VALUE 4
- ------------------------------------------------------
INVESTING IN SELECT SHARES 4
- ------------------------------------------------------
Share Purchases 4
Through a Financial Institution 4
Directly from the Distributor 4
Minimum Investment Required 5
What Shares Cost 5
Systematic Investment Program 5
Certificates and Confirmations 5
Dividends and Distributions 5
Retirement Plans 6
EXCHANGE PRIVILEGE 6
- ------------------------------------------------------
Requirements for Exchange 6
Tax Consequences 6
Making an Exchange 7
Telephone Instructions 7
REDEEMING SELECT SHARES 7
- ------------------------------------------------------
Through a Financial Institution 7
Directly from the Fund 8
By Telephone 8
By Mail 8
Signatures 8
Systematic Withdrawal Program 9
Accounts with Low Balances 9
FUND INFORMATION 9
- ------------------------------------------------------
Management of the Fund 9
Board of Directors 9
Officers and Directors 9
Fund Ownership 12
Investment Adviser 12
Advisory Fees 13
Adviser's Background 13
Distribution of Select Shares 14
Distribution Plan 14
Other Payments to Financial
Institutions 14
Administration of the Fund 14
Administrative Services 14
Shareholder Services Plan 15
Custodian 15
Transfer Agent and Dividend
Disbursing Agent 15
Legal Counsel 15
Independent Auditors 15
Expenses of the Fund and Select Shares 15
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights 16
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
Pennsylvania Corporate and Personal
Property Taxes 16
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
OTHER CLASSES OF SHARES 17
- ------------------------------------------------------
Financial Highlights--Class A Shares 18
Financial Highlights--Class C Shares 20
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SELECT 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
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds as applicable)..................................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)......................................... None
Exchange Fee............................................................................................... None
ANNUAL SELECT SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee............................................................................................. 0.64%
12b-1 Fee.................................................................................................. 0.75%
Total Other Expenses....................................................................................... 0.44%
Shareholder Servicing Fee................................................................... 0.25%
Total Select Shares Operating Expenses............................................................... 1.83%
</TABLE>
- ---------
* Total Select Shares Operating Expenses are estimated based on average expenses
expected to be incurred during the period ending March 31, 1994. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF SELECT SHARES OF THE FUND WILL
BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN SELECT SHARES" AND "FUND
INFORMATION." Wire transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charges permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period............................................................................ $ 19 $ 58
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING MARCH 31,
1994.
The information set forth in the foregoing table and example relates only to
Select Shares of the Fund. The Fund also offers two other classes of shares
called Class A Shares and Class C Shares. Class A, Class C and Select Shares are
subject to certain of the same expenses; however, Class A Shares are subject to
a maximum sales load of 4.50% and may be subject to a redemption fee, but are
not subject to a 12b-1 fee. Class C Shares may be subject to a redemption fee of
1.00%. 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 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 C Shares and Select Shares. This prospectus
relates only to Select Shares ("Shares") of the Fund.
Shares of the Fund are designed for customers of 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.
Shares are sold at net asset value. Shares will be redeemed at net asset value
without the imposition of a redemption fee.
The Fund's current net asset value and offering price can be found in the mutual
funds section of local newspapers under "Liberty Family Funds."
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
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 instrumentalities or which
are guaranteed by the U.S. government, its agencies, or instrumentalities.
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.
As a matter of investment practice which may be changed without shareholder
approval, the Fund will continue to limit its investments, within the parameters
of applicable regulations of the Federal Home Loan Bank System or
interpretations thereof, to legal investments and investment practices for
federal credit unions as set forth in Sections 107(7) and (8) of the Federal
Credit Union Act and Part 703 of the National Credit Union Administration
Regulations. The Fund will provide all federal credit union shareholders of
record with sixty (60) days' written notice should the Fund intend to change
such investment practice.
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 Select Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Select
Shares in the liabilities of the Fund and those attributable to the Select
Shares, and dividing the remainder by the number of Select Shares outstanding.
The net asset value for Select Shares may differ from that of Class A 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 SELECT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor, or directly from the distributor, Federated Securities Corp.,
once an account has been established. In connection with the sale of Fund
shares, Federated Securities Corp. may from time to time offer certain items of
nominal value to any shareholder or investor. The Fund reserves the right to
reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Fund is
notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 P.M. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 P.M. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 P.M. (Eastern time) in order for Shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase
Shares directly from the distributor once an account has been established. To do
so:
complete and sign the new account form available from the Fund;
enclose a check made payable to Fund for U.S. Government Securities,
Inc.--Select Shares; and
mail both to Fund for U.S. Government Securities, Inc., P.O. Box 8604,
Boston, MA 02266-8604.
Orders by mail are considered received after payment by check is converted by
State Street Bank and Trust Company ("State Street Bank") into federal funds.
This is generally the next business day after State Street Bank receives the
check.
To purchase Shares directly from the distributor by wire once an account has
been established, call the Fund. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: State Street Bank and
Trust Company, Boston, Massachusetts 02105; Attention: Mutual Fund Servicing
Division; For Credit to: Fund for U.S. Government Securities, Inc.--Select
Shares; Title or Name of Account; Wire Order Number and/or Account Number.
Shares cannot be purchased by wire on Columbus Day, Veteran's Day, or Martin
Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500 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, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares at the net asset value next determined after an order is
received by the transfer agent. A shareholder may apply for participation in
this program through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions are declared and paid monthly to all shareholders
invested in the Fund on the record date. Dividends 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 on payment dates at the ex-dividend date net asset value,
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, or purchased after the record date, those
Shares are not entitled to that month's dividend.
Shares purchased through a financial institution, for which payment by wire is
received by the transfer agent on the business day following the order, begin to
earn dividends on the day the wire payment is received. Otherwise, shares
purchased by wire begin to earn dividends on the business day after wire payment
is received by the transfer agent. Shares purchased by mail, or through a
financial institution, if the financial institution's payment is by check, begin
to earn dividends on the second business day after the check is received by the
transfer agent.
Shares earn dividends through the business day that proper written redemption
instructions are received by the transfer agent.
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, Select shareholders may exchange all or some of their
Shares for Select Shares in the Select Shares of Liberty High Income Bond Fund,
Liberty Municipal Securities Fund and Limited Maturity Government Fund at net
asset value.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
Shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. The exchange privilege may be
terminated at any time. Shareholders will be notified of the termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for certain
Federated Funds are available by contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Boston Financial Data Services, Inc., Attention: Federated Division, Two
Heritage Drive, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the transfer agent. If the instructions are given by a broker, a
telephone authorization form completed by the broker must be on file with the
transfer agent. Shares may be exchanged between two funds by telephone only if
the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent and deposited to the shareholder's account
before being exchanged. Telephone exchange instructions will be binding upon the
shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern time)
and must be received by the transfer agent before that time for shares to be
exchanged the same day. Shareholders exchanging into a new Fund will not receive
that Fund's dividend which is payable to shareholders of record on that date.
This privilege may be modified or terminated at any time. Telephone instructions
may be recorded. If reasonable procedures are not followed by the Fund, it may
be liable for losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SELECT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the
transfer agent receives the redemption request. Redemptions will be made on days
on which the Fund computes its net asset value. Redemptions can be made through
a financial institution or directly from the Fund. Redemption requests must be
received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after the Fund receives the redemption
request from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for Shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service.
DIRECTLY FROM THE FUND
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Fund. The proceeds will
be mailed to the shareholder's address of record or wire transferred to the
shareholder's account at a domestic commercial bank that is a member of the
Federal Reserve System, normally within one business day, but in no event longer
than seven days after the request. The minimum amount for a wire transfer is
$1,000. If at any time the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
An authorization form permitting the transfer agent to accept telephone requests
must first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
Telephone instructions may be recorded. If reasonable procedures are not
followed by 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
State Street Bank. The written request should include the shareholder's name,
the Fund name and class designation, the account number, and the share or dollar
amount requested, and should be signed exactly as the Shares are registered.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders should call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount not less
than $100 may take advantage of the Systematic Withdrawal Program. Under this
program, Shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions with
respect to Shares, and the fluctuation of the net asset value of Shares redeemed
under this program, redemptions may reduce, and eventually deplete, the
shareholder's investment in the Fund. For this reason, payments under this
program should not be considered as yield or income on the shareholder's
investment in the Fund. To be eligible to participate in this program, a
shareholder must have an account value of at least $10,000. A shareholder may
apply for participation in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, 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>
<S> <C> <C>
POSITIONS WITH
NAME AND ADDRESS THE FUND PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of
J. Christopher Donahue, President and Director of the Fund.
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior
Wood/IPC Commercial Vice-President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood General Partner or Trustee in private real estate ventures
and Associates, Inc. in Southwest Florida; Director, Trustee, or Managing General
Realtors Partner of the Funds; formerly, President, Naples Property
3255 Tamiami Trail Management, Inc.
North 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 and President and Trustee, Federated Investors; Trustee,
Federated Investors Tower Director Federated Advisers, Federated Management and Federated
Pittsburgh, PA Research; President and Director, Federated Administrative
Services, Inc.; President or Vice President of the Funds;
Director, Trustee, or Managing General Partner of some of
the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Director of the Fund.
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, Eat
5916 Penn Mall 'N Park Restaurants, Inc., and Statewide Settlement Agency,
Pittsburgh, PA 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
& Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat 'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Center;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds;
President Emeritus, University of Pittsburgh; formerly,
Chairman, National Advisory Council for Environmental Policy
and Technology.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or
4905 Bayard Street Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher Federated Vice President Executive Vice President and Trustee, Federated Investors;
Investors Tower Pittsburgh, PA Chairman and Director, Federated Securities Corp.; President
or Vice President of the Funds; Director or Trustee of some
of the Funds.
Edward C. Gonzales Federated Vice President and Vice President, Treasurer and Trustee, Federated Investors;
Investors Tower Pittsburgh, PA Treasurer Vice President and Treasurer, Federated Advisers, Federated
Management, and Federated Research; Executive Vice
President, Treasurer, and Director, Federated Securities
Corp.; Chairman, Treasurer, and Director, Federated
Administrative Services, Inc.; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
John W. McGonigle Federated Vice President and Vice President, Secretary, General Counsel and Trustee,
Investors Tower Pittsburgh, PA Secretary Federated Investors; Vice President, Secretary and Trustee,
Federated Advisers, Federated Management, and Federated
Research; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and
Executive Vice President, Federated Securities Corp.; Vice
President and Secretary of the Funds.
John A. Staley, IV Federated Vice President Vice President and Trustee, Federated Investors; Executive
Investors Tower Pittsburgh, PA Vice President, Federated Securities Corp.; President and
Trustee, Federated Advisers, Federated Management and
Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance
Company and President of its Federated Research Division.
</TABLE>
* This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940.
\ Member of the Fund's Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
FUND OWNERSHIP. Officers and Directors own less than 1% of the Fund's
outstanding shares.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment
research and supervision for the Fund and is responsible for the purchase or
sale of portfolio instruments, for which it receives an annual fee from the
Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee based on a percentage of the Fund's average daily net assets as shown
on the chart below, plus 4.5% of the Fund's annual 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 .25 of 1%
Second $500 million .225 of 1%
Over $1 billion .20 of 1%
</TABLE>
The adviser may voluntarily choose to waive a portion of its fee or
reimburse the Fund for certain operating expenses. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's co-portfolio manager since February of 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 serves as Vice
President of the Fund's investment adviser. 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 of
1993. Ms. Foody-Malus joined Federated Investors in 1983 and has been a Vice
President of the Fund's investment adviser since 1993. Ms. Foody-Malus served as
an investment analyst from 1986 until 1989 and as Assistant Vice President of
the Fund's investment adviser from 1989 until 1993. Ms. Foody-Malus received her
M.B.A. in Accounting/Finance from the University of Pittsburgh.
DISTRIBUTION OF SELECT SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended,
(the "Plan"), Shares will pay an amount computed at an annual rate of .75% of
the average daily net asset value of Shares to finance any activity which is
principally intended to result in the sale of Shares.
The distributor may select financial institutions (such as a broker/dealer or
bank) to provide sales support services as agents for their clients or customers
who beneficially own Shares. Financial institutions will receive fees from the
distributor based upon Shares owned by their clients or customers. The schedules
of such fees and the basis upon which such fees will be paid will be determined
from time to time by the distributor.
The Fund's Plan is a compensation type Plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, and including
interest, carrying, or other financing charges in connection with excess amounts
expended, or the distributor's overhead expenses. However, the distributor may
be able to recover such amounts or may earn a profit from future payments made
by Select Shares under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Directors
will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
The distributor may, from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _Certain financial institutions may be
compensated by the adviser or its affiliates for the continuing investment of
customers' assets in certain funds, including the Fund, advised by those
entities. These payments will be made directly by the distributor or adviser
from their assets, and will not be made from the assets of the Fund.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., which is a
subsidiary of Federated Investors, provides the Fund with the administrative
personnel and services necessary to operate the
Fund. Such services include shareholder servicing and certain legal and
accounting services. Federated Administrative Services, Inc. provides these at
approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
("The Services Plan") with respect to Class A, Class C and Select Shares. Under
the Services Plan, financial institutions will enter into shareholder service
agreements with the Fund to provide administrative support services to their
customers who from time to time may be owners of record or beneficial owners of
Select Shares. In return for providing these support services, a financial
institution may receive payments from the Fund at a rate not exceeding .25% of
the average daily net assets of the Select Shares of the Fund beneficially owned
by the financial institution's customers for whom it is holder of record or with
whom it has a servicing relationship. These administrative services may include,
but are not limited to, the following functions: providing office space,
equipment, telephone facilities, and various personnel including clerical,
supervisory, and computer as necessary or beneficial to establish and maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the Fund; assisting clients in
changing dividend options, account designations and addresses; and providing
such other services as the Fund reasonably requests.
CUSTODIAN. State Street Bank and Trust Company, 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,
Pittsburgh, Pennsylvania is transfer agent for shares of the Fund and dividend
disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, 125 Summer Street, Boston, Massachusetts 02110.
EXPENSES OF THE FUND AND SELECT SHARES
Holders of Shares pay their allocable portion of Fund and portfolio expenses.
The Fund expenses for which holders of Shares each pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
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.
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 Servicing Plan. However, the
Board of Directors reserves 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 Servicing
Plan; printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders; registration fees paid to the SEC and to state securities
commissions; expenses related to administrative personnel and services ass
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 of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All shares of all classes of
the Fund have equal voting rights, except that in matters affecting only a
particular portfolio or class, only shares of that portfolio or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a two-thirds vote of the number of Directors prior
to such removal or by a two-thirds vote of the shareholders as a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the written request of shareholders owning at least 10% of the Fund's
outstanding shares of all series entitled to vote.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies. The Fund will be
treated as a single, separate entity for federal income tax purposes so that
income (including capital gains) and losses realized by the Fund's other
portfolios, if any, will not be combined for tax purposes with those realized by
the Fund.
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 Select
Shares.
Total return represents the change, over a specific period of time, in the value
of an investment in Select Shares after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of Shares is calculated each day by dividing the net investment income
per share (as defined by the Securities and Exchange Commission) earned by
Shares over a thirty-day period by the maximum offering price per share of
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 Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
Total return and yield will be calculated separately for Class A, Class C and
Select Shares. Because Select and Class C Shares are subject to Rule 12b-1 fees
and Shareholder Servicing fees, the yield for Class A Shares, for the same
period, will exceed that of Select and Class C Shares.
From time to time the Fund may advertise the performance of Shares using certain
reporting services and/or compare the performance of Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Fund does not presently offer Class B Shares. Class A Shares are sold
primarily to customers of financial institutions subject to a front-end sales
charge of up to 4.50% and certain redemption charges. Class A Shares are subject
to a minimum initial investment of $500, 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 charge. Class C Shares are distributed
pursuant to a Rule 12b-1 Plan adopted by the Fund whereby the distributor is
paid a fee of up to .75 of 1%, in addition to a shareholder services fee of .25
of 1% of the Class C Shares' average daily net assets. In addition, Class C
Shares may be subject to certain redemption changes. 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
Select and Class C Shares by the difference between Class Expenses borne by
shares of each respective class.
The stated advisory fee is the same for all three classes of shares.
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 auditors. Their report dated April 30, 1993, on the Fund's financial
statements for the year ended March 31, 1993, and on the following table for
each of the eight years in the period ended March 31, 1993, the period from July
1, 1984 to March 31, 1985, and the two years in the period ended June 30, 1984
is included in the Fund's Prospectus, which is incorporated by reference. This
table should be read in conjunction with the Fund's financial statements and
notes thereto, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, JUNE 30,
1993 1992 1991 1990 1989 1988 1987 1986 1985* 1984
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77 $ 8.37 $ 7.74 $ 8.45
- ------------------
INCOME FROM
INVESTMENT
OPERATIONS
- ------------------
Net investment
income 0.71 0.75 0.77 0.78 0.76 0.78 0.80 0.93 0.74 0.92
- ------------------
Net realized and
unrealized gain/
(loss) on
investments (0.03) 0.08 0.19 0.21 (0.40) (0.15) (0.21) 0.46 0.64 (0.72)
- ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations 0.68 0.83 0.96 0.99 0.36 0.63 0.59 1.39 1.38 0.20
- ------------------
LESS DISTRIBUTIONS
- ------------------
Dividends to
shareholders from
net investment
income (0.69) (0.73) (0.78) (0.77) (0.76) (0.78) (0.80) (0.99) (0.75) (0.91)
- ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77 $ 8.37 $ 7.74
- ------------------ --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN** 8.31% 10.20% 12.12% 12.59% 4.47% 7.66% 7.23% 17.42% 18.39% 2.27%
- ------------------
RATIOS TO AVERAGE
NET ASSETS
- ------------------
Expenses 0.83% 0.91% 0.97% 0.96% 0.96% 0.96% 0.95% 0.91% 0.89%(a) 1.15%
- ------------------
Net investment
income 8.33% 8.69% 9.21% 9.32% 9.22% 9.31% 9.24% 10.51% 12.11%(a) 11.16%
- ------------------
Expense waiver/
reimbursement (b) -- -- -- 0.04% -- 0.01% 0.05% 0.13% 0.55 (a) 0.24%
- ------------------
SUPPLEMENTAL DATA
- ------------------
Net assets, end
of period
(000 omitted) $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 $47,215
- ------------------
Portfolio
turnover rate 52% 43% 27% 98% 83% 72% 135% 129% 121% 117%
- ------------------
<CAPTION>
<S> <C>
1983
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 6.84
- ------------------
INCOME FROM
INVESTMENT
OPERATIONS
- ------------------
Net investment
income 0.78
- ------------------
Net realized and
unrealized gain/
(loss) on
investments 1.59
- ------------------ ---------
Total from
investment
operations 2.37
- ------------------
LESS DISTRIBUTIONS
- ------------------
Dividends to
shareholders from
net investment
income (0.76)
- ------------------ ---------
NET ASSET VALUE,
END OF PERIOD $ 8.45
- ------------------ ---------
TOTAL RETURN** 35.18%
- ------------------
RATIOS TO AVERAGE
NET ASSETS
- ------------------
Expenses 1.29%
- ------------------
Net investment
income 9.48%
- ------------------
Expense waiver/
reimbursement (b) --
- ------------------
SUPPLEMENTAL DATA
- ------------------
Net assets, end
of period
(000 omitted) $54,928
- ------------------
Portfolio
turnover rate 90%
- ------------------
</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 redemption
fee, if applicable.
(a)Computed on an annualized basis.
(b)This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1993, which can be obtained free of charge.
(See Notes which are an integral part of the Financial Statements)
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS A SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994** 1993 1992 1991 1990 1989 1988 1987 1986 1985*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 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 0.33 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 (0.13) (0.03) 0.08 0.19 0.21 (0.40) (0.15) (0.21) 0.46 0.64
--- --- --- --- --- --- --- --- --- ---
- -----------------
Total from
investment
operations 0.20 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 in-
vestment income (0.33) (0.69) (0.73) (0.78) (0.77) (0.76) (0.78) (0.80) (0.99) (0.75)
--- --- --- --- --- --- --- --- --- ---
- -----------------
NET ASSET VALUE,
END OF PERIOD $ 8.37 $ 8.50 $ 8.51 $ 8.41 $ 8.23 $ 8.01 $ 8.41 $ 8.56 $ 8.77 $ 8.37
--- --- --- --- --- --- --- --- --- ---
- -----------------
TOTAL RETURN*** 4.84% 8.31% 10.20% 12.12% 12.59% 4.47% 7.66% 7.23% 17.42% 18.39%
- -----------------
RATIOS TO AVERAGE
NET ASSETS
- -----------------
Expenses 0.87%(a) 0.83% 0.91% 0.97% 0.96% 0.96% 0.96% 0.95% 0.91% 0.
89%(a)
- -----------------
Net investment
income 7.68%(a) 8.33% 8.69% 9.21% 9.32% 9.22% 9.31% 9.24% 10.51% 12.
11%(a)
- -----------------
Expense waiver/
reimbursement (b) -- -- -- -- 0.04% -- 0.01% 0.05% 0.13% 0.55%(
a)
- -----------------
SUPPLEMENTAL DATA
- -----------------
Net assets, end
of period (000
omitted) $1,942,480 $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 62 % 52% 43% 27% 98% 83% 72% 135% 129% 121%
- -----------------
<CAPTION>
JUNE 30,
1984 1983
<S> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 8.45 $ 6.84
- -----------------
INCOME FROM
INVESTMENT
OPERATIONS
- -----------------
Net investment
income 0.92 0.78
- -----------------
Net realized and
unrealized gain/
(loss) on
investments (0.72) 1.59
--- ---
- -----------------
Total from
investment
operations 0.20 2.37
- -----------------
LESS
DISTRIBUTIONS
- -----------------
Dividends to
shareholders
from net in-
vestment income (0.91) (0.76)
--- ---
- -----------------
NET ASSET VALUE,
END OF PERIOD $ 7.74 $ 8.45
--- ---
- -----------------
TOTAL RETURN*** 2.27% 35.18%
- -----------------
RATIOS TO AVERAGE
NET ASSETS
- -----------------
Expenses 1.15% 1.29%
- -----------------
Net investment
income 11.16% 9.48%
- -----------------
Expense waiver/
reimbursement (b) 0.24% --
- -----------------
SUPPLEMENTAL DATA
- -----------------
Net assets, end
of period (000
omitted) $47,215 $54,928
- -----------------
Portfolio
turnover rate 117% 90 %
- -----------------
</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.
**For the six-month period ended September 30, 1993 (unaudited).
***Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expense and net investment
income ratios shown above (Note 4).
Further information about the Fund's performance is contained in the Fund's
annual report dated March 31, 1993, which can be obtained free of charge.
(See Notes which are an integral part of the Financial Statements)
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
FINANCIAL HIGHLIGHTS
CLASS C SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD
ENDED
9/30/93*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.53
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------------------------------
Net investment income 0.27
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.15)
- ----------------------------------------------------------------------------------------------------- -----------
Total from investment operations 0.12
- -----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.29)
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, END OF PERIOD $ 8.36
- ----------------------------------------------------------------------------------------------------- -----------
TOTAL RETURN** 1.37%
- -----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------------------------------
Expenses 1.55%(a)
- -----------------------------------------------------------------------------------------------------
Net investment income 5.60%(a)
- -----------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) --
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$70,914
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 62 %
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from April 29, 1993 (date of initial
public investment) to September 30, 1993.
** Based on net asset value which does not reflect the sales load or
redemption fee, if applicable.
(a) Computed on an annualized basis.
(b) This expense decrease is reflected in both the expense and net investment
income ratios shown (Note 4).
(See Notes which are an integral part of the Financial Statements)
Fund for U.S.
Government
Securities, Inc.
Select Shares
PROSPECTUS
JANUARY 15, 1993
ESTABLISHED 15, 1994
An Open-End, Diversified
Management Investment Company
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8062807A-SEL (1/94)
FUND FOR U.S. GOVERNMENT SECURITIES, INC.
CLASS A SHARES
CLASS C SHARES
SELECT SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Class A and Class C Shares of Fund for
U.S. Government Securities, Inc. (the "Fund") dated May 5, 1993, and
Select Shares of the Fund, dated January 15, 1994. This Statement is
not a prospectus itself. To receive a copy of the prospectus for any
class, write or call Fund for U.S. Government Securities, Inc.
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 15, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Stripped Mortgage-Related Securities 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
Lending of Portfolio Securities 1
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 ARRANGEMENTS 4
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 4
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 4
- ---------------------------------------------------------------
PURCHASING SHARES 5
- ---------------------------------------------------------------
Distribution of Shares 5
Distribution Plan (Class C and
Select Shares Only) 5
Conversion to Federal Funds 5
Purchases by Sales Representatives, Fund
Directors, and Employees 5
DETERMINING NET ASSET VALUE 6
- ---------------------------------------------------------------
REDEEMING SHARES 6
- ---------------------------------------------------------------
TAX STATUS 6
- ---------------------------------------------------------------
The Fund's Tax Status 6
Shareholder's Tax Status 6
TOTAL RETURN 6
- ---------------------------------------------------------------
YIELD 6
- ---------------------------------------------------------------
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, Class C and Select Shares (individually, and
collectively referred to as "Shares" as the context may require). The Fund does
not presently offer Class B Shares. This 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. 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 m ortgages, 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
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, 1993,
1992, and 1991, the portfolio turnover rates were 52%, 43% and 27%,
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 limitation, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes 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.
With regard to "Selling Short and Buying on Margin", as described in the
above limitation, as an investment practice, the Fund intends to limit
such transactions to circumstances authorized for federal credit
unions under Section 107 of the Federal Credit Union Act and Part 703 of
the National Credit Union Administration regulations.
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 FUNDS
- --------------------------------------------------------------------------------
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated 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; Insurance Management Series; Intermediate Municipal Trust; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. - 1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The
Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; Trust for U.S. Treasury Obligations.
FUND OWNERSHIP
As of January 6, 1994, there were no shareholders of record who owned 5% or more
of the outstanding Class A Shares of the Fund.
Merrill Lynch Pierce Fenner & Smith (as record owner holding Class C shares for
its clients), Jacksonville, Florida, owned approximately 4,918,230 shares (41%)
of the Fund as of January 6, 1994.
As of January 6, 1993, there were no shareholders of record who owned 5% more of
the outstanding Select Shares of the Fund.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All 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. John A. Staley, IV, is President and Trustee,
Federated Advisers, Vice President and Trustee, Federated Investors, Executive
Vice President, Federated Securities Corp., and Vice President of the Fund. J.
Christopher Donahue is Trustee of Federated Advisers, President and Trustee,
Federated Investors, President and Director, Federated Administrative Services,
Inc., and President and Director of the Fund. John W. McGonigle is Vice
President, Secretary and Trustee of Federated Advisers, Trustee, Vice President,
Secretary and General Counsel, Federated Investors, Executive Vice President,
Secretary and Director, Federated Administrative Services, Inc., Executive Vice
President and Director, Federated Securities Corp., and Vice President and
Secretary of the Fund.
The adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the respective prospectus for Class A, Class C and
Select Shares. During the fiscal years ended March 31, 1993, 1992 and 1991,
prior to the creation of separate classes of shares, the Fund's adviser earned
$10,204,383, $8,308,696 and $7,401,832, respectively. During the fiscal year
ended March 31, 1991, the Fund's adviser voluntarily waived $14,000 because of
undertakings to limit the Fund's expenses.
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 ARRANGEMENTS
- --------------------------------------------------------------------------------
For the fiscal years ended March 31, 1993, 1992 and 1991, prior to the creation
of separate classes of shares, the distributor paid $807,810, $483,059, and
$145,286, respectively, to brokers and dealers for distribution and
administrative services and to administrators for administrative services. The
administrative services included, but were not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
For the fiscal years ended March 31, 1993, 1992, and 1991, prior to the creation
of separate classes of shares the Fund incurred administrative service fees of
$953,655, $897,160 and $837,473, respectively. John A. Staley, IV, an officer of
the Fund, and Dr. Henry J. Gailliot, an officer of Federated Advisers, the
adviser to the Fund, each hold approximately 15% and 20%, respectively, of the
outstanding common stock and serve as directors of Commercial Data Services,
Inc., a company which provides computer processing services to Federated
Administrative Services, Inc. For the fiscal years ended March 31, 1993, 1992,
and 1991, Federated Administrative Services, Inc. paid approximately $178,232,
$203,888, and $166,897, respectively, for services provided by Commercial Data
Services, Inc.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Directors.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
For the fiscal years ended March 31, 1993, 1992, and 1991, prior to the creation
of separate classes of shares, 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 charge on Class A Shares only) on days
the New York Stock Exchange is open for business. The procedure for purchasing
Shares is explained in the respective prospectus under "Investing in Class A
Shares," "Investing in Class C Shares," and "Investing in Select Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares. For the
fiscal years ended March 31, 1993, 1992 and 1991, prior to the creation of
separate classes of shares, the distributor was paid $9,233,462, $5,174,823 and
$l,494,303, respectively. During the same periods, the Distributor retained
$974,516, $742,252 and $13,282, respectively, after dealer concessions.
DISTRIBUTION PLAN (CLASS C AND SELECT SHARES ONLY)
With respect to the Class C and Select Shares of the Fund, the Fund has adopted
a Plan pursuant to Rule 12b-l which was promulgated by the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended. The
Plan provides for payment of fees to Federated Securities Corp. to finance any
activity which is primarily intended to result in the sale of Class C and Select
Shares. Such activities may include the advertising and marketing of Shares;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the distributor may pay fees to
brokers for distribution and administrative services and to administrators for
administrative services as to Shares. The administrative services are provided
by a representative who has knowledge of the shareholder's particular
circumstances and goals, and include, but are not limited to: communicating
account openings; communicating account closings; entering purchase
transactions; entering redemption transactions; providing or arranging to
provide accounting support for all transactions, wiring funds and receiving
funds for Share purchases and redemptions, confirming and reconciling all
transactions; reviewing the activity in Fund accounts; providing training and
supervision of broker personnel; posting and reinvesting dividends to Fund
accounts or arranging for this service to be performed by the Fund's transfer
agent; and maintaining and distributing current copies of prospectuses and
shareholder reports to the beneficial owners of Shares and prospective
shareholders.
The Board of Directors expects that the adoption of the Plan will result in the
sale of a sufficient number of Shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and assist the Fund in
seeking to achieve its investment objective.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. State Street Bank acts as the shareholder's agent in depositing
checks and converting them to federal funds.
PURCHASES BY SALES REPRESENTATIVES, FUND DIRECTORS, AND EMPLOYEES
Directors, employees, and sales representatives of the Fund, Federated Advisers,
and Federated Securities Corp. or their affiliates, or any investment dealer who
has a sales agreement with Federated Securities Corp. and their spouses and
children under 21, may buy Class A shares at net asset value without a sales
charge. Shares may also be sold without a sales charge to trusts or pension or
profit-sharing plans for these people.
These sales are made with the purchaser's written assurance that the purchase is
for investment purposes and that the securities will not be resold except
through redemption by the Fund.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value, less any
applicable redemption fee, after the Fund receives the redemption request.
Redemption procedures are explained in the respective prospectuses under
"Redeeming Class A Shares," "Redeeming Class C Shares," and "Redeeming Select
Shares." Although State Street Bank does not charge for telephone redemptions,
it reserves the right to charge a fee for the cost of wire-transferred
redemptions of less than $5,000.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet 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, 1993, the Fund had a capital loss carryover of $67,541,560 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 returns for the one-year, five-year, and
ten-year periods ended March 31, 1993, prior to the creation of separate classes
of shares were 3.45%, 8.49%, and 9.60%, respectively.
The average annual total return for each of the classes of Shares of the Fund is
the average compounded rate of return for a given period that would equate a
$1,000 initial investment to the ending redeemable value of that investment. The
ending redeemable value is computed by multiplying the number of shares owned at
the end of the period by the net asset value per share at the end of the period.
The number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, less any applicable
sales load on Class A Shares only, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all dividends and distributions.
Any applicable redemption fee is deducted from the ending value of the
investment based on the lesser of the original purchase price or the net asset
value of shares redeemed.
YIELD
- --------------------------------------------------------------------------------
Prior to the creation of separate classes of shares, the Fund's yield for the
thirty-day period ended March 31, 1993 was 4.93%.
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.
From time to time, the Fund may advertise the performance of any class of Shares
compared to similar funds or portfolios using certain indices, reporting
services and financial publications. These may include the following:
SHEARSON LEHMAN 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.
SHEARSON LEHMAN GOVERNMENT/CORPORATE TOTAL 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 four
weeks.
Investors may use such indices or reporting services in addition to any class of
Shares' prospectus to obtain a more complete view of the Shares' performance
before investing. Of course, when comparing the performance of any class of
Shares to any index, conditions such as composition of the index and prevailing
market conditions should be considered in assessing the significance of such
comparisons. When comparing funds using reporting services, or total return and
yield, investors should take into consideration any relevant differences in
funds such as permitted portfolio compositions and methods used to value
portfolio securities and compute offering price.
Advertisements and other sales literature for any class of Shares may quote
total returns which are calculated on non-standardized base periods. These total
returns 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 charge on Class A Shares.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Financial Statements for the fiscal year end March 31, 1993, are
incorporated herein by reference to the Annual Report of the Fund dated March
31, 1993, and the Semi-Annual Report dated September 30, 1993; (File Nos.
2-33490 and 811-1890). A copy of either report may be obtained without charge by
contacting the Fund.
8062807B (1/94)
