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FEDERATED U.S. GOVERNMENT BOND FUND
Supplement to Prospectus Dated October 31, 1998
I. At a special meeting of shareholders to be held on November 15,
1999, shareholders of the above-named Trust will be asked to vote
on the changes described below. If approved by shareholders, these
changes will take effect on or after December 1, 1999.
Shareholders will be notified if any of these changes are not
approved at the special meeting or any adjournment thereof. Please
keep this supplement for your records.
Shareholders will be asked to consider the following proposals:
(1) To elect seven Trustees.
(2) To make changes to the Trust's fundamental investment
policies:
(a) To amend the Trust's fundamental investment policy
regarding diversification to read as follows:
"With respect to securities comprising 75% of the
value of its total assets, the Trust will not
purchase securities of any one issuer (other than
cash; cash items; securities issued or guaranteed by
the government of the United States or its agencies
or instrumentalities and repurchase agreements
collateralized by such U.S. government securities;
and securities of other investment companies) if, as
a result, more than 5% of the value of its total
assets would be invested in the securities of that
issuer, or the Trust would own more than 10% of the
outstanding voting securities of that issuer."
(b) To amend the Trust's fundamental investment policy
regarding borrowing money and issuing senior
securities to read as follows:
"The Trust may borrow money, directly or indirectly,
and issue senior securities to the maximum extent
permitted under the 1940 Act."
(c) To amend the Trust's fundamental investment policy
regarding investments in real estate to read as
follows:
"The Trust may not purchase or sell real estate,
provided that this restriction does not prevent the
Trust from investing in issuers which invest, deal,
or otherwise engage in transactions in real estate or
interests therein, or investing in securities that
are secured by real estate or interests therein. The
Trust may exercise its rights under agreements
relating to such securities, including the right to
enforce security interests and to hold real estate
acquired by reason of such enforcement until that
real estate can be liquidated in an orderly manner."
(d) To amend the Trust's fundamental investment policy
regarding investments in commodities to read as
follows:
"The Trust may not purchase or sell physical
commodities, provided that the Trust may purchase
securities of companies that deal in commodities."
(e) To amend the Trust's fundamental investment policy
regarding underwriting securities to read as follows:
"The Trust may not underwrite the securities of other
issuers, except that the Trust may engage in
transactions involving the acquisition, disposition
or resale of its portfolio securities, under
circumstances where it may be considered to be an
underwriter under the Securities Act of 1933."
(f) To amend the Trust's fundamental investment policy
regarding lending by the Trust to read as follows:
"The Trust may not make loans, provided that this
restriction does not prevent the Trust from
purchasing debt obligations, entering into repurchase
agreements, lending its assets to broker/dealers or
institutional investors and investing in loans,
including assignments and participation interests."
(g) To amend the Trust's fundamental investment policy
regarding concentration of the Trust's investments in
the securities of companies in the same industry to
read as follows:
"The Trust will not make investments that will result
in the concentration of its investments in the
securities of issuers primarily engaged in the same
industry. Government securities, municipal securities
and bank instruments will not be deemed to constitute
an industry."
(h) To amend, and to make non-fundamental, the Trust's
fundamental investment policy regarding buying
securities on margin to read as follows:
"The Trust will not purchase securities on margin,
provided that the Trust may obtain short-term credits
necessary for the clearance of purchases and sales of
securities, and further provided that the Trust may
make margin deposits in connection with its use of
financial options and futures, forward and spot
currency contracts, swap transactions and other
financial contracts or derivative instruments."
(i) To amend, and to make non-fundamental, the Trust's
fundamental investment policy regarding pledging
assets to read as follows:
"The Trust will not mortgage, pledge, or hypothecate
any of its assets, provided that this shall not apply
to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements
in connection with permissible activities."
(j) To amend, and to make non-fundamental, the Trust's
fundamental investment policy regarding investing in
illiquid securities to read as follows:
"The Trust will not purchase securities for which
there is no readily available market, or enter into
repurchase agreements or purchase time deposits
maturing in more than seven days, if immediately
after and as a result, the value of such securities
would exceed, in the aggregate, 15% of the Trust's
net assets."
(k) To amend, and to make non-fundamental, the Trust's
fundamental investment policy regarding investing in
restricted securities to read as follows:
"The Trust may invest in restricted securities.
Restricted securities are any securities in which the
Trust may invest pursuant to its investment objective
and policies but which are subject to restrictions on
resale under federal securities law. Under criteria
established by the Trustees, certain restricted
securities are determined to be liquid. To the extent
that restricted securities are not determined to be
liquid, the Trust will limit their purchase, together
with other illiquid securities, to 15% of its net
assets."
(l) To amend, and to make non-fundamental, the Trust's
fundamental investment policy regarding temporary
investments to read as follows:
"The Trust may temporarily depart from its principal
investment strategies by investing its assets in
cash, cash items and short-term, higher-quality debt
securities and similar obligations."
(m) To make non-fundamental the Trust's following
fundamental investment policies regarding purchasing
put options:
"The Trust may attempt to hedge all or a portion of
its portfolio through the purchase of put options on
portfolio securities and listed put options on
financial futures contracts for portfolio securities.
Put options on portfolio securities are intended to
protect against price movements in particular
securities in the portfolio. Put options on financial
futures contracts will be used only to protect
portfolio securities against decreases in value
resulting from market factors such as an anticipated
increase in interest rates. The Trust will not
purchase put options on securities unless the
securities are held in the Trust's portfolio."
(n) To make non-fundamental the Trust's following
fundamental investment policies regarding selling
call options:
"The Trust may write covered call options to generate
income. The Trust may only sell listed call options
either on securities held in its portfolio or on
securities which it has the right to obtain without
payment of further consideration (or has segregated
cash in the amount of any such additional
consideration). The Trust reserves the right to write
covered call options on its entire portfolio. The
Trust will not write call options on securities
unless the securities are held in the Trust's
portfolio or unless the Trust is entitled to them in
deliverable form without further payment or after
segregating cash in the amount of any further
payment."
(o) To make non-fundamental the Trust's current
fundamental investment policy regarding investing in
when-issued and delayed delivery transactions that
states:
"The Trust may invest in when-issued and delayed
delivery transactions to secure what is considered to
be an advantageous price and yield for the Trust."
(p) To make non-fundamental the Trust's fundamental
investment policy that provides that the Trust may
enter into reverse repurchase agreements.
(3) To eliminate certain of the Trust's fundamental investment
policies:
(a) To remove the Trust's fundamental investment policy
regarding selling securities short;
(b) To remove the Trust's fundamental investment policy
regarding investing in oil, gas and minerals;
(c) To remove the Trust's fundamental investment policy
regarding investing in securities of new issuers;
(d) To remove the Trust's fundamental investment policy
regarding investing in issuers whose securities are
owned by officers and Trustees;
(e) To remove the Trust's fundamental investment policy
regarding investing for the purpose of exercising
control;
(f) To remove the Trust's fundamental investment policy
relating to short-term trading;
(g) To remove the Trust's fundamental investment policy
regarding investing in futures contracts; and
(h) To remove the Trust's fundamental investment policies
confining investments to instruments that are
permitted investments for federally chartered savings
and loan institutions.
(4) To approve amendments to, and a restatement of, the
Declaration of Trust for the Trust:
(a) To require the approval of a majority of the
outstanding voting securities of the Trust in the
event of the sale and conveyance of the assets of the
Trust to another trust or corporation; and
(b) To permit the Board of Trustees to liquidate assets
of the Trust, or of its series or classes, and
distribute the proceeds of such assets to the holders
of such shares representing such interests, without
seeking shareholder approval.
II. The following actions have been taken by the Board of Trustees
with regard to certain non-fundamental investment policies and
limitations of the Trust:
(1) Approved the elimination of the following non-fundamental
investment limitations of the Trust:
(a) Removed the Trust's non-fundamental investment policy
pertaining to writing covered call options that
provides that the Trust will not write covered call
options on more than 25% of its total assets unless a
higher limit is authorized by the Trustees.
(b) Removed the Trust's non-fundamental investment policy
prohibiting engaging in when-issued and delayed
delivery transactions to an extent that would cause
the segregation of more than 20% of the total value
of the Trust's assets.
(2) Approved the adoption of a non-fundamental investment
policy for the Trust that provides that the Trust may
purchase calls.
(3) Approved the elimination of the following undertakings for
the Trust:
"The Trust did not engage in options transactions or
reverse repurchase agreements, sell securities short,
borrow money, or invest in illiquid securities in excess
of 5% of the value of its total assets during the last
fiscal year, and has no present intent to do so in the
coming fiscal year."
(4) Approved the adoption of the following non-fundamental
investment limitations pertaining to concentration by the
Trust:
"(a) utility companies will be divided according to their
services (for example, gas, gas transmission, electric and
telephone will each be considered a separate industry);
(b) financial service companies will be classified
according to the end users of their services (for example,
automobile finance, bank finance and diversified finance
will each be considered a separate industry); and (c)
asset-backed securities will be classified according to
the underlying assets securing such securities. To conform
to the current view of the SEC that only domestic bank
instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the
Trust will not exclude foreign banks from industry
concentration limits as long as the policy of the SEC
remains in effect. In addition, investments in bank
instruments, and investments in certain industrial
development bonds funded by activities in a single
industry, will be deemed to constitute investment in an
industry, except when held for temporary defensive
purposes. The investment of more than 25% of the value of
the Trust's total assets in any one industry will
constitute `concentration.'"
(5) Approved the adoption of the following non-fundamental
investment limitation for the Trust when applying its
commodities restriction:
"As a matter of non-fundamental policy, for purposes of
the commodities policy, investments in transactions
involving futures contracts and options, forward currency
contracts, swap transactions and other financial contracts
that settle by payment of cash are not deemed to be
investments in commodities."
October 1, 1999
Federated Investors
Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Cusip 314284100
