1933 Act File No. 2-98491
1940 Act File No. 811-4539
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 17 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 18 X
FEDERATED ARMs FUND
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
x on October 31, 1994, pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange
Commission a declaration pursuant to Rule 24f-2 under the
Investment Company Act of 1940, and:
X filed the Notice required by that Rule on October 14,
1994; or
intends to file the Notice required by that Rule on or
about ____________; or
during the most recent fiscal year did not sell any
securities pursuant to Rule 24f-2 under the Investment
Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need
not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin, L.L.P.
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of FEDERATED
ARMs FUND (formerly, Federated U.S. Government Fund),
containing two classes of shares, (a) Institutional Shares and
(b) Institutional Service Shares, is comprised of the
following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page.
Item 2. Synopsis Summary of Fund Expenses.
Item 3. Condensed Financial
Information Financial Highlights;
Performance Information.
Item 4. General Description of
Registrant General Information; Investment
Information; Investment
Objective; Investment Policies;
Investment Limitations.
Item 5. Management of the Fund Trust Information; Management
of the Trust; Administration of
the Fund; (a) Distribution of
Institutional Shares; Expenses
of the Fund and Institutional
Shares; (b) Distribution of
Institutional Service Shares;
Expenses of the Fund and
Institutional Service Shares.
Item 6. Capital Stock and Other
Securities Dividends; Capital Gains;
Shareholder Information; Voting
Rights; Massachusetts
Partnership Law; Tax
Information; Federal Income
Tax; Pennsylvania Corporate and
Personal Property Taxes; Other
Classes of Shares.
Item 7. Purchase of Securities
Being Offered Net Asset Value; (a)Investing
in Institutional Shares, (b)
Investing in Institutional
Service Shares; Share
Purchases; Minimum Investment
Required; What Shares Cost; (a)
Exchanging Securities for
Institutional Shares, (b)
Exchanging Securities for
Institutional Service Shares;
Subaccounting Services;
Certificates and Confirmations.
Item 8. Redemption or Repurchase (a) Redeeming Institutional
Shares, (b) Redeeming
Institutional Service Shares;
Telephone Redemption; Written
Requests; Accounts with Low
Balances.
Item 9. Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL
INFORMATION
Item 10. Cover Page Cover Page.
Item 11. Table of Contents Table of Contents.
Item 12. General Information and
History General Information About the
Fund.
Item 13. Investment Objective and
Policies Investment Objective and
Policies.
Item 14. Management of the Fund Federated ARMs Fund Management.
Item 15. Control Persons and
Principal Holders of
Securities Fund Ownership.
Item 16. Investment Advisory and
Other Services Investment Advisory Services;
Administrative Services.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchasing Shares; Determining
Net Asset Value; Redeeming
Shares; Exchanging Securities
for Fund Shares.
Item 20. Tax Status Tax Status.
Item 21. Underwriters Not applicable.
Item 22. Calculation of Performance
Data Total Return; Yield;
Performance Comparisons.
Item 23. Financial Statements Filed in Part A.
- --------------------------------------------------------------------------------
FEDERATED ARMS FUND
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares offered by this prospectus represent
interests in a diversified portfolio of securities (the "Fund") of
Federated ARMs Fund (the "Trust"). The Trust is an open-end management
investment company (a mutual fund).
The investment objective of the Fund is to provide current income
consistent with minimal volatility of principal. The Fund concentrates
at least 65% of the value of its total assets in adjustable and
floating rate mortgage securities ("ARMs") which are issued or
guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in Institutional Shares of the Fund. Keep this
prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
for Institutional Shares and Institutional Service Shares dated
October 31, 1994, with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Combined Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information
or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
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 October 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- --------------------------------------------------
GENERAL INFORMATION 3
- --------------------------------------------------
INVESTMENT INFORMATION 3
- --------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 8
TRUST INFORMATION 9
- --------------------------------------------------
Management of the Trust 9
Distribution of Institutional Shares 10
Administration of the Fund 10
Expenses of the Fund and
Institutional Shares 11
NET ASSET VALUE 12
- --------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 12
- --------------------------------------------------
Share Purchases 12
Minimum Investment Required 12
What Shares Cost 13
Exchanging Securities for
Institutional Shares 13
Subaccounting Services 13
Certificates and Confirmations 13
Dividends 13
Capital Gains 14
REDEEMING INSTITUTIONAL SHARES 14
- --------------------------------------------------
Telephone Redemption 14
Written Requests 14
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
- --------------------------------------------------
Voting Rights 15
Massachusetts Partnership Law 15
TAX INFORMATION 16
- --------------------------------------------------
Federal Income Tax 16
Pennsylvania Corporate and Personal
Property Taxes 16
PERFORMANCE INFORMATION 16
- --------------------------------------------------
OTHER CLASSES OF SHARES 17
- --------------------------------------------------
FINANCIAL STATEMENTS 18
- --------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 29
- --------------------------------------------------
ADDRESSES 30
- --------------------------------------------------
I
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................................. None
Contingent Deferred Sales Charge (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
<CAPTION>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)................................................................. 0.46%
12b-1 Fee......................................................................................... None
Total Other Expenses.............................................................................. 0.09%
Shareholder Services Fee (2)......................................................... 0.00%
Total Institutional Shares Operating Expenses (3)......................................... 0.55%
<FN>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.60%.
(2) The maximum shareholder services fee is 0.25%.
(3) The Total Institutional Shares Operating Expenses would have been 0.69%
absent the voluntary waiver of a portion of the management fee.
</TABLE>
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SHARES OF THE
FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF
THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL SHARES" AND
"TRUST INFORMATION." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of
each time period............................................... $6 $18 $31 $69
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Institutional Shares of the Fund. The Fund also offers another class of shares
called Institutional Service Shares. Institutional Shares and Institutional
Service Shares are subject to certain of the same expenses; however,
Institutional Service Shares are subject to a 12b-1 fee of up to 0.25%. See
"Other Classes of Shares."
1
FEDERATED ARMS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 29.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986*
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 9.98 $ 10.01 $ 9.67 $ 8.99 $ 9.47 $ 8.88 $ 8.99 $ 9.98 $ 10.00
- ------------
INCOME FROM
INVESTMENT
OPERATIONS
- ------------
Net
investment
income 0.45 0.50 0.63 0.69 0.71 0.72 0.73 0.78 0.62
- ------------
Net
realized
and
unrealized
gain
(loss) on
investments (0.35) (0.03) 0.42 0.68 (0.48) 0.59 (0.11) (0.99) (0.02)
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from
investment
operations 0.10 0.47 1.05 1.37 0.23 1.31 0.62 (0.21) 0.60
- ------------
LESS
DISTRIBUTIONS
- ------------
Dividends
to
shareholders
from net
investment
income (0.45) (0.50) (0.63) (0.69) (0.71) (0.72) (0.73) (0.78) (0.62)
- ------------
Distributions
to
shareholders
from net
realized
gain on
investment
transactions -- -- (0.08) -- -- -- -- -- --
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
distributions (0.45) (0.50) (0.71) (0.69) (0.71) (0.72) (0.73) (0.78) (0.62)
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET
VALUE, END
OF PERIOD $ 9.63 $ 9.98 $ 10.01 $ 9.67 $ 8.99 $ 9.47 $ 8.88 $ 8.99 $ 9.98
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL
RETURN+ .99% 4.82% 11.21% 15.73% 2.45% 15.25% 7.09% (2.33)% 6.16%
- ------------
RATIOS TO
AVERAGE NET
ASSETS
- ------------
Expenses 0.55% 0.51% 0.51% 0.78% 0.78% 0.79% 0.75% 0.81%
0.96%(a)
- ------------
Net
investment
income 4.51% 4.97% 5.95% 7.36% 7.62% 7.81% 8.10% 7.88%
9.84%(a)
- ------------
Expenses
waiver/reimbursement
(b) 0.14% 0.21% 0.32% 1.02% 1.02% 0.95% 1.18% 0.75%
1.50%(a)
- ------------
SUPPLEMENTAL
DATA
- ------------
Net
assets,
end of
period
(000
omitted) $1,238,813 $2,669,888 $1,090,944 $30,330 $26,261 $25,574 $16,753 $7,405 $5,433
- ------------
Porfolio
turnover
rate 65% 36% 38% 127% 170% 85% 125% 228% 89%
- ------------
<FN>
* Reflects operations for the period from December 3, 1985 to August 31, 1986.
For the period from the start of business, November 18, 1985, to December 2,
1985, net investment income aggregating $0.030 per share ($300) was
distributed to the Fund's investment adviser. Such distribution represented
the net investment income of the Fund prior to the initial public offering of
Fund shares, which commenced December 3, 1985.
+ Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year-ended August 31, 1994, which can be obtained
free of charge.
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated May 24, 1985. The Declaration of Trust permits the Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees (the "Trustees") have established two classes
of shares, Institutional Service Shares and Institutional Shares. This
prospectus relates only to Institutional Shares (the "Shares") of the Fund.
Shares are sold primarily to accounts for which financial institutions act in a
fiduciary or agency capacity, and other accounts where a financial institution
maintains master accounts with an aggregate investment of at least $400 million
in certain mutual funds which are advised or distributed by affiliates of
Federated Investors. Shares are also made available to financial intermediaries,
public, and private organizations. In addition, Shares are designed to provide
an appropriate investment for particular financial institutions that are subject
to government agency regulations, including credit unions, savings associations,
and national banks. An investment in the Fund serves as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio
which invests at least 65% of the value of its total assets in U.S. government
securities, all of which government securities will be adjustable and floating
rate mortgage securities which are issued or guaranteed as to payment of
principal and interest by the U.S. government, its agencies or
instrumentalities. A minimum initial investment of $25,000 over a 90-day period
is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with minimal volatility of principal. Current income includes, in general,
discount earned on U.S. Treasury bills and agency discount notes, interest
earned on mortgage related securities and other U.S. government securities, and
short-term capital gains. The investment objective cannot be changed without
approval of shareholders. The Fund anticipates that it will experience minimal
volatility of principal due to the frequent adjustments to interest rates on
adjustable and floating rate mortgage securities which comprise the portfolio.
Of course, there can be no assurance that the Fund will be able to maintain
minimal volatility of principal or that it will achieve its investment
objective. The Fund endeavors to achieve its investment objective, however, by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
Except as otherwise noted, the investment policies described below may not be
changed by the Trustees without shareholder approval.
3
The Fund will limit its investments to those that are permitted for purchase by
federal savings associations pursuant to applicable rules, regulations, or
interpretations of the Office of Thrift Supervision and by federal credit unions
under the Federal Credit Union Act and the rules, regulations, and
interpretations of the National Credit Union Administration (the "NCUA"). Should
additional permitted investments be allowed as a result of future changes in
applicable regulations or federal laws, the Fund reserves the right, without
shareholder approval, to make such investments consistent with the Fund's
investment objective, policies, and limitations. Further, should existing
statutes or regulations change so as to cause any securities held by the Fund to
become ineligible for purchase by federal savings associations or federal credit
unions, the Fund will dispose of those securities at times advantageous to the
Fund.
As operated within the above limitations, and pursuant to the Fund's investment
policy, which may be changed without shareholder approval, to limit its
investment to securities that are appropriate direct investments for national
banks, the Fund will also serve as an appropriate vehicle for a national bank as
an investment for its own account.
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
at least 65% of the value of its total assets in a professionally managed
portfolio of U.S. government securities. As a matter of investment policy, which
may be changed without shareholder approval, all of these U.S. government
securities will be adjustable and floating rate mortgage securities which are
issued or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities.
The types of mortgage securities in which the Fund may invest include the
following:
- adjustable rate mortgage securities;
- collateralized mortgage obligations;
- real estate mortgage investment conduits; and
- other securities collateralized by or representing interests in real
estate mortgages whose interest rates reset at periodic intervals and are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the securities described above, the Fund may also invest in
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and
bonds, as well as obligations of U.S. government agencies or instrumentalities
which are not collateralized by or represent interests in real estate mortgages,
as described above.
The Fund may also invest in mortgage related securities, as defined in section
3(a)(41) of the Securities Exchange Act of 1934, which are issued by private
entities such as investment banking firms and companies related to the
construction industry. The privately issued mortgage related securities in which
the Fund may invest include:
- privately issued securities which are collateralized by pools of mortgages
in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government;
4
- privately issued securities which are collateralized by pools of mortgages
in which payment of principal and interest are guaranteed by the issuer
and such guarantee is collateralized by U.S. government securities; and
- other privately issued securities in which the proceeds of the issuance
are invested in mortgage backed securities and payment of the principal
and interest are supported by the credit of any agency or instrumentality
of the U.S. government.
The privately issued mortgage related securities provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through mortgage
securities with adjustable rather than fixed interest rates. The ARMS in which
the Fund invests are issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), and Federal Home Loan
Mortgage Corporation ("FHLMC") and are actively traded. The underlying mortgages
which collateralize ARMS issued by GNMA are fully guaranteed by the Federal
Housing Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of "locking
in" long-term interest rates than other types of U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the market
value of ARMS generally declines when interest rates rise and generally rises
when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g. investments with comparable maturities) because,
as interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if ARMS are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if ARMS are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
5
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. CMOs purchased by the Fund may be:
- collateralized by pools of mortgages in which each mortgage is guaranteed
as to payment of principal and interest by an agency or instrumentality of
the U.S. government;
- collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or
- securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the
credit of an agency or instrumentality of the U.S. government.
The Fund will only purchase CMO's which are investment grade, as rated by a
nationally recognized statistical rating organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings of
multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships, corporations,
associations or a segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates (the type in which
the Fund primarily invests), and a single class of "residual interests." To
qualify as a REMIC, substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real property.
REGULATORY COMPLIANCE.__In accordance with the Rules and Regulations of the
NCUA, unless the purchase is made solely to reduce interest-rate risk, the Fund
will not invest in any CMO or REMIC security that meets any of the following
three tests: (1) the CMO or REMIC has an expected average life greater than 10
years; (2) the average life of the CMO or REMIC extends by more than 4 years
assuming an immediate and sustained parallel shift in the yield curve of plus
300 basis points, or shortens by more than 6 years assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points; or (3)
the estimated change in the price of the CMO or REMIC is more than 17%, due to
an immediate and sustained parallel shift in the yield curve of plus or minus
300 basis points.
Neither test (1) nor (2) above apply to floating or adjustable rate CMOs or
REMICs with all of the following characteristics: (a) the interest rate of the
instrument is reset at least annually; (b) the interest rate is below the
contractual cap of the instrument; (c) the instrument is tied to a widely-used
market rate; and (d) the instrument varies directly (not inversely) and is reset
in proportion with the index's changes.
The Fund may not purchase a residual interest in a CMO or REMIC. In addition,
the Fund will not purchase zero coupon securities with maturities greater than
10 years.
6
RESETS. The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund
invests generally are readjusted or reset at intervals of one year or less to an
increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
180-day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury Note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize the ARMS, CMOs,
and REMICs in which the Fund invests will frequently have caps and floors which
limit the maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval and (2) over the life of
the loan. Some residential mortgage loans restrict periodic adjustments by
limiting changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may result in
negative amortization.
The value of mortgage securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. An example of the effect of
caps and floors on a residential mortgage loan may be found in the Combined
Statement of Additional Information. Additionally, even though the interest
rates on the underlying residential mortgages are adjustable, amortization and
prepayments may occur, thereby causing the effective maturities of the mortgage
securities in which the Fund invests to be shorter than the maturities stated in
the underlying mortgages.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. Money market instruments may include
obligations such as:
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition. 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.
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 Trustees and will
7
receive collateral in the form of cash or U.S. government securities equal to at
least 100% of the value of the securities loaned.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS.__The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PORTFOLIO TURNOVER. The Fund does not intend to invest for the purpose of
seeking short-term profits, however securities in its portfolio will be sold
whenever the Fund's investment adviser believes it is appropriate to do so in
light of the Fund's investment objective, without regard to the length of time a
particular security may have been held.
INVESTMENT LIMITATIONS
The Fund will not:
- invest in stripped mortgage securities, including securities which
represent a share of only the interest payments or only the principal
payments from underlying mortgage related securities;
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its net assets and pledge up to
10% of the value of its total assets to secure such borrowings;
- lend any of its assets except portfolio securities up to one-third of the
value of its total assets;
- invest more than 5% of the value of its total assets in securities of
issuers which have records of less than three years of continuous
operations, including the operation of any predecessor. With respect to
the asset-backed securities, the Fund will treat the originator of the
asset pool as the company issuing the securities for purposes of
determining compliance with this limitation.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
8
The Fund will not:
- invest more than 15% of its net assets in securities which are illiquid,
including repurchase agreements providing for settlement in more than
seven days after notice.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. 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 Adviser receives an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse the Fund for certain operating
expenses. This does not include reimbursement to the Fund of any expenses
incurred by shareholders who use the transfer agent's subaccounting facilities.
The Adviser can terminate this voluntary waiver of its advisory fee at any time
in 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 Management, 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,
President and Trustee of Federated Investors.
Federated Management 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.
9
Gary J. Madich and Susan M. Nason are the Fund's co-portfolio managers. Gary J.
Madich has been the Fund's co-portfolio manager since January 1992. Mr. Madich
joined Federated Investors in 1984 and has been a Senior Vice President of the
Fund's investment adviser since 1993. Mr. Madich served as a Vice President of
the Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the University
of Pittsburgh.
Susan M. Nason has been the Fund's co-portfolio manager since December 1993. Ms.
Nason joined Federated Investors in 1987 and has been a Vice President of the
Fund's investment adviser since 1993. Ms. Nason served as an Assistant Vice
President of the investment adviser from 1990 until 1992, and from 1987 until
1990 she acted as an investment analyst. Ms. Nason is a Chartered Financial
Analyst and received her M.B.A. in Finance from Carnegie-Mellon University.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors (the "Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN.__The Fund has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Shares to obtain certain personal services
for shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
10
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS.__In addition to periodic payments to
financial institutions under the Shareholder Services Plan, 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 or by the assessment of a sales charge on Shares.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is the transfer agent for the Shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SHARES
The Fund pays all of its own expenses. Holders of Shares pay their allocable
portion of Fund and Trust expenses. The Trust expenses for which holders of
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence, registering the Trust with
federal and state securities authorities, Trustees' fees, the cost of meetings
of Trustees, legal fees of the Trust, association membership dues, and such
non-recurring and extraordinary items as may arise.
The Fund expenses for which holders of Shares 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.
At present, no expenses are allocated to the Shares as a class. However, the
Trustees reserve the right to allocate certain expenses to holders of Shares as
they deem appropriate (the "Class Expenses"). In any case, the Class Expenses
would be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses,
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
11
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Shares will exceed that of Institutional Service Shares due to the variance in
daily net income realized by each class as a result of different distribution
charges incurred by the classes. Such variance will reflect only accrued net
income to which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased either by wire or mail.
To purchase Shares of the Fund, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone. The Fund reserves the right to reject any purchase request.
BY WIRE. To purchase Shares of the Fund by Federal Reserve wire, call the Fund
before 4:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: Federated ARMs
Fund--Institutional Shares; Fund Number (this number can be found on the account
statement or by contacting the Fund); Group Number or Order Number; Nominee or
Institution Name; ABA Number 011000028. Shares cannot be purchased on days on
which the New York Stock Exchange is closed and on federal holidays restricting
wire transfers.
BY MAIL. To purchase Shares of the Fund by mail, send a check made payable to
Federated ARMs Fund--Institutional Shares to the Fund's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box
8604, Boston, Massachusetts 02266-8604. Orders by mail are considered received
after payment by check is converted by the transfer agent's bank, State Street
Bank, into federal funds. This is normally the next business day after State
Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000 plus any non-affiliated
bank or broker's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Fund. Accounts established through a non-
affiliated bank or broker may be subject to a smaller minimum investment.
12
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
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 on which no Shares are tendered for redemption
and no orders to purchase Shares are received; and (iii) the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR INSTITUTIONAL SHARES
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Fund reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Fund are
valued in the same manner as the Fund values its assets. Shareholders wishing to
exchange securities should first contact Federated Securities Corp.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
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
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 the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are
13
automatically reinvested on payment dates in additional Shares of the Fund
unless cash payments are requested by contacting the Fund.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every twelve months.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). The proceeds will normally be wired the following business day,
but in no event longer than seven days later, to the shareholder's account at a
domestic commercial bank that is a member of the Federal Reserve System. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, the shareholders may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as that discussed in "Written Requests,"
should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, the class of Shares,
his account number, and the share or dollar amount requested. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
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
Exchanges;
14
- 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 and its transfer agent reserve
the right to amend these standards at any time without notice.
RECEIVING PAYMENT. 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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $25,000 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights except that, in matters affecting only a
particular Fund or class, only shares of that particular Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Fund shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all portfolios entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
15
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because the Fund expects to meet
requirements of the Internal Revenue Code, as amended, 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 related by the
Trust'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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- the Fund is not subject to the Pennsylvania corporate or personal property
tax; and
- Shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that
the Fund's portfolio securities would be subject to such taxes if owned
directly by residents of those jurisdictions.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield for
Institutional Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Institutional Shares after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Institutional Shares is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Institutional Shares over a thirty-day period by the offering price per share
of Institutional Shares on the last day of the period. This number is then
annualized using semi-annual compounding. The yield does not necessarily reflect
16
income actually earned by Institutional Shares and, therefore, may not correlate
to the dividends or other distributions paid to shareholders.
The Institutional Shares are sold without any sales load or other similar
non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares. Because Institutional Service Shares are
subject to 12b-1 fees, total return and yield of Institutional Shares, for the
same period, will exceed that of Institutional Service Shares.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares are sold to banks and other institutions that hold
assets in an agency capacity and rely upon the distribution services provided by
the distributor for the marketing of these shares, as well as to retail
customers of such institutions, and are subject to a minimum initial investment
of $25,000. Institutional Service Shares are sold at net asset value and are
distributed pursuant to a Rule 12b-1 Plan adopted by the Trust whereby the
distributor is paid a fee of .25 of 1% of the Institutional Service Shares'
average net assets.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to holders of Institutional Shares will exceed
that of Institutional Service Shares by the difference between class expenses
and distribution and shareholder service expenses borne by shares of each
respective class.
The stated advisory fee is the same for both classes of shares.
17
FEDERATED ARMS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 29.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1994 1993 1992*
- ------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 10.01 $ 9.98
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.42 0.48 0.18
- ------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.35) (0.03) 0.03
- ------------------------------------------------------------ --------- --------- ---------
Total from investment operations 0.07 0.45 0.21
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Dividends to shareholders from net investment income (0.42) (0.48) (0.18)
- ------------------------------------------------------------ --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.63 $ 9.98 $ 10.01
- ------------------------------------------------------------ --------- --------- ---------
TOTAL RETURN+ 0.74% 4.56% 2.11%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.80% 0.76% 0.76% (a)
- ------------------------------------------------------------
Net investment income 4.26% 4.72% 5.46% (a)
- ------------------------------------------------------------
Expense waiver/reimbursement (b) 0.23% 0.21% 0.32% (a)
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $255,891 $499,418 $113,095
- ------------------------------------------------------------
Portfolio turnover rate 65% 36% 38%
- ------------------------------------------------------------
<FN>
* Reflects operations for the period from May 4, 1992 (date of initial public
investment of Institutional Service Shares) to August 31, 1992.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year-ended August 31, 1994, which can be obtained
free of charge.
18
FEDERATED ARMS FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------- --------------
<C> <S> <C>
GOVERNMENT AGENCY OBLIGATIONS--82.3%
- -------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. PC ADJUSTABLE
RATE MORTGAGE--42.7%
-------------------------------------------------
$624,668,640 4.352%-7.667%, 5/1/2016-9/1/2032 $ 638,350,567
------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ADJUSTABLE
RATE MORTGAGE--29.0%
-------------------------------------------------
423,871,989 4.021%-11.50%, 3/1/2016-1/1/2029 433,441,829
------------------------------------------------- --------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
ADJUSTABLE RATE MORTGAGE--2.7%
-------------------------------------------------
39,811,058 6.50%-6.75%, 6/20/2022-7/20/2024 40,004,848**
------------------------------------------------- --------------
FEDERAL HOME LOAN MORTGAGE CORP. REMIC--2.2%
-------------------------------------------------
1,914,926 5.325%, Series 4-4A, 5/15/2019 1,921,819
-------------------------------------------------
18,876,700 6.45%, Series 1578-FE, 7/15/2022 18,522,762
-------------------------------------------------
12,057,750 10.15%, Series MH1-A, 4/15/2006 12,540,421
------------------------------------------------- --------------
Total 32,985,002
------------------------------------------------- --------------
FEDERAL HOME LOAN MORTGAGE CORP.--0.3%
-------------------------------------------------
4,459,053 11.50%, 5/1/2019 4,903,531
------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--1.3%
-------------------------------------------------
6,724,849 5.262%, Series G91-15F, 6/25/2021 6,697,815
-------------------------------------------------
5,906,659 5.412%, Series G92-16F, 3/25/2022 5,906,541
-------------------------------------------------
6,446,578 5.412%, Series G92-21F, 4/25/2022 6,443,935
------------------------------------------------- --------------
Total 19,048,291
------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--0.5%
-------------------------------------------------
6,220,900 11.50%, 2/1/2020 6,905,199
------------------------------------------------- --------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--3.6%
-------------------------------------------------
48,520,008 11.00%-12.00%, 12/15/2009-7/15/2020 54,509,624
------------------------------------------------- --------------
TOTAL GOVERNMENT AGENCY OBLIGATIONS
(IDENTIFIED COST, $1,238,530,140) 1,230,148,891
------------------------------------------------- --------------
</TABLE>
19
FEDERATED ARMS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------- --------------
<C> <S> <C>
TREASURY OBLIGATIONS--10.9%
- -------------------------------------------------------------------
U.S. TREASURY BILLS--3.2%
-------------------------------------------------
$ 50,000,000 8/24/95 $ 47,413,000
------------------------------------------------- --------------
U.S. TREASURY NOTES--7.7%
-------------------------------------------------
115,000,000 5.875%-6.125%, 5/31/96-7/31/96 114,924,350
------------------------------------------------- --------------
TOTAL TREASURY OBLIGATIONS
(IDENTIFIED COST, $162,220,547) 162,337,350
------------------------------------------------- --------------
*REPURCHASE AGREEMENTS--7.2%
- -------------------------------------------------------------------
20,000,000(a) Goldman Sachs & Co., 4.71%, dated 8/23/94, due
9/26/94 20,000,000
------------------------------------------------- --------------
7,640,000 J.P. Morgan Securities, Inc., 4.85%, dated
8/31/94, due 9/1/94 7,640,000
------------------------------------------------- --------------
80,000,000 Kidder, Peabody & Co., Inc., 4.80%, dated
8/31/94, due 9/1/94 80,000,000
------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS
(AMORTIZED COST) 107,640,000
------------------------------------------------- --------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $1,508,390,687) $1,500,126,241+
------------------------------------------------- --------------
</TABLE>
<TABLE>
<C> <S>
<FN>
(a) Although final maturity falls beyond seven days a liquidity feature is included in
each transaction to permit termination of the repurchase agreement within seven days.
* The repurchase agreements are fully collateralized by U.S. government and/or agency
obligations based on market prices at the date of the portfolio. The investment in
the repurchase agreements are through participation in joint accounts with other
Federated funds.
** Includes security with a market value of $20,025,000, subject to Dollar Roll
transactions.
+ The cost of investments for federal tax purposes amounts to $1,508,390,687. The net
unrealized depreciation of investments on a federal tax cost basis amounts to
$8,264,446, which is comprised of $2,611,483 appreciation and $10,875,929
depreciation at August 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($1,494,704,025) at August 31, 1994.
</TABLE>
<TABLE>
<S> <C>
The following abbreviations are used in this portfolio:
PC --Participation Certificate
REMIC --Real Estate Mortgage Investment Conduit
</TABLE>
(See Notes which are integral part of the Financial Statements)
20
FEDERATED ARMS FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- -----------------------------------------------------------------
Investments, at value (identified and tax cost; $1,508,390,687) $1,500,126,241
- -----------------------------------------------------------------
Cash 129,432
- -----------------------------------------------------------------
Interest receivable 10,977,347
- -----------------------------------------------------------------
Receivable for investments sold 12,363,951
- -----------------------------------------------------------------
Receivable for Fund shares sold 29,238
- ----------------------------------------------------------------- --------------
Total assets 1,523,626,209
- -----------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Payable for Dollar Roll transactions $19,950,919
- -----------------------------------------------------
Dividends payable 5,479,538
- -----------------------------------------------------
Payable for Fund shares redeemed 3,304,855
- -----------------------------------------------------
Accrued expenses 186,872
- ----------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
Total liabilities 28,922,184
- ----------------------------------------------------------------- --------------
NET ASSETS for 155,173,964 shares of beneficial interest
outstanding $1,494,704,025
- ----------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- -----------------------------------------------------------------
Paid-in capital $1,573,572,622
- -----------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (8,264,446)
- -----------------------------------------------------------------
Accumulated net realized gain (loss) on investments (70,604,151)
- ----------------------------------------------------------------- --------------
Total Net Assets $1,494,704,025
- ----------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds per
Share:
- -----------------------------------------------------------------
Institutional Shares (net assets of
$1,238,812,594 DIVIDED BY 128,609,253 shares of beneficial
interest outstanding) $ 9.63
- ----------------------------------------------------------------- --------------
Institutional Service Shares (net assets of
$255,891,431 DIVIDED BY 26,564,711 shares of beneficial interest
outstanding) $ 9.63
- ----------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
21
FEDERATED ARMS FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------------
Interest income (net of interest expense of $89,107) $123,828,567
- ----------------------------------------------------------------------------------------
EXPENSES--
- ----------------------------------------------------------------------------------------
Investment advisory fee $14,679,639
- -------------------------------------------------------------------------
Trustees' fees 24,136
- -------------------------------------------------------------------------
Administrative personnel and services 1,429,050
- -------------------------------------------------------------------------
Custodian and portfolio accounting fees 458,202
- -------------------------------------------------------------------------
Distribution services fees 1,097,576
- -------------------------------------------------------------------------
Shareholder services fees--Institutional Service Shares 395,231
- -------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 87,603
- -------------------------------------------------------------------------
Fund share registration costs 67,813
- -------------------------------------------------------------------------
Auditing fees 19,913
- -------------------------------------------------------------------------
Legal fees 41,667
- -------------------------------------------------------------------------
Insurance premiums 47,118
- -------------------------------------------------------------------------
Printing and postage 20,903
- -------------------------------------------------------------------------
Taxes 19,359
- -------------------------------------------------------------------------
Miscellaneous 20,211
- ------------------------------------------------------------------------- -----------
Total expenses 18,408,421
- -------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fees $3,459,009
- ------------------------------------------------------------
Waiver of distribution services fees 395,231 3,854,240
- ------------------------------------------------------------ ---------- -----------
Net expenses 14,554,181
- ---------------------------------------------------------------------------------------- ------------
Net investment income 109,274,386
- ---------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ----------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (55,879,989)
- ----------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,269,803)
- ---------------------------------------------------------------------------------------- ------------
Net realized and unrealized gain (loss) on investments (80,149,792)
- ---------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 29,124,594
- ---------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
22
FEDERATED ARMS FUND
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------------------------
Net investment income $ 109,274,386 $ 102,966,928
- --------------------------------------------------------------------------------
Net realized gain (loss) on investments ($16,735,698 net loss, and $1,799,433
net loss, respectively, as computed for federal tax purposes) (55,879,989) (14,483,096)
- --------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (24,269,803) 12,316,539
- -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations 29,124,594 100,800,371
- -------------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- --------------------------------------------------------------------------------
Institutional Shares (90,585,086) (90,280,942)
- --------------------------------------------------------------------------------
Institutional Service Shares (18,689,300) (12,685,986)
- -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets from distributions to shareholders (109,274,386) (102,966,928)
- -------------------------------------------------------------------------------- --------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- --------------------------------------------------------------------------------
Proceeds from sales of shares 1,886,076,982 3,939,613,668
- --------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 34,585,437 33,745,129
- --------------------------------------------------------------------------------
Cost of shares redeemed (3,515,114,267) (2,005,925,557)
- -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets from Fund share transactions (1,594,451,848) 1,967,433,240
- -------------------------------------------------------------------------------- --------------- ---------------
Change in net assets (1,674,601,640) 1,965,266,683
- --------------------------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------------------------
Beginning of period 3,169,305,665 1,204,038,982
- -------------------------------------------------------------------------------- --------------- ---------------
End of period $ 1,494,704,025 $ 3,169,305,665
- -------------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
23
FEDERATED ARMS FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated ARMs Fund (the "Fund") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as a diversified, open-end, no-load management
investment company. The Fund provides two classes of shares: Institutional
Shares and Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued
interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary. At August 31, 1994, the Fund,
for federal tax purposes, had a capital loss carryforward of $18,535,131,
which will reduce the Fund's taxable income arising from future net realized
gains on investments, if any, to the
24
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 2001, $1,799,433 and 2002,
$16,735,698. Additionally, net capital losses of $52,068,567, attributable
to security transactions incurred after October 31, 1993, are treated as
arising on September 1, 1994, the first day of the Fund's next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
G. DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA, and FHLMC, in
which the Fund loans mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon,
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions are short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments that may enhance the Fund's
current yield and total return.
25
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1994 1993
------------------------------ -----------------------------
INSTITUTIONAL SHARES: SHARES DOLLARS SHARES DOLLARS
- -------------------------------------------------- ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 141,739,864 $ 1,407,584,109 320,888,500 $3,198,878,233
- --------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 2,487,150 24,495,269 2,708,639 26,990,753
- --------------------------------------------------
Shares redeemed (283,203,693) (2,797,587,573) (165,001,133) (1,644,713,651)
- -------------------------------------------------- ------------ --------------- ------------ --------------
Net change resulting from Institutional Shares
transactions (138,976,679) ($1,365,508,195) 158,596,006 $1,581,155,335
- -------------------------------------------------- ------------ --------------- ------------ --------------
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------
1994 1993
------------------------------ -----------------------------
INSTITUTIONAL SERVICE SHARES: SHARES DOLLARS SHARES DOLLARS
- -------------------------------------------------- ------------ --------------- ------------ --------------
<S> <C> <C> <C> <C>
Shares sold 48,183,748 $ 478,492,873 74,332,361 $ 740,735,435
- --------------------------------------------------
Shares issued to shareholders in payment of
dividends declared 1,024,374 10,090,168 677,755 6,754,376
- --------------------------------------------------
Shares redeemed (72,696,731) (717,526,694) (36,255,451) (361,211,906)
- -------------------------------------------------- ------------ --------------- ------------ --------------
Net change resulting from Institutional Service
Shares transactions (23,488,609) (228,943,653) 38,754,665 386,277,905
- -------------------------------------------------- ------------ --------------- ------------ --------------
Net change resulting from Fund share
transactions (162,465,288) ($1,594,451,848) 197,350,671 $1,967,433,240
- -------------------------------------------------- ------------ --------------- ------------ --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .60 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
26
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of the funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Institutional Service Shares. The Plan provides
that the Fund may incur distribution expenses up to .25 of 1% of the average
daily net assets of the Institutional Service Shares, annually, to compensate
FSC. The distributor may voluntarily choose to waive its fee. The distributor
can modify or terminate this voluntary waiver at any time at its sole
discretion.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of each class of shares for the period. This fee is to obtain certain
personal services for shareholders and to maintain shareholder accounts.
For the fiscal year ended August 31, 1994, Institutional Shares did not incur a
shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
INTERFUND TRANSACTIONS--During the period ended August 31, 1994, the Fund
engaged in purchase and sale transactions with other affiliated funds pursuant
to Rule 17a-7 under the Act, amounting to $588,256,901 and $703,344,890,
respectively. These purchases and sales were conducted on an arms length basis
and transacted for cash consideration only, at independent current market
prices, and without brokerage commissions, fees, or other remuneration.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
27
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1994, were as follows:
<TABLE>
<S> <C>
PURCHASES--
- --------------------------------------------------
U.S. government obligations $1,551,633,178
- -------------------------------------------------- --------------
SALES AND MATURITIES
- --------------------------------------------------
U.S. government obligations $2,609,061,586
- -------------------------------------------------- --------------
</TABLE>
28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ---------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED ARMs FUND:
We have audited the accompanying statement of assets and liabilities of
Federated ARMs Fund, including the portfolio of investments, as of August 31,
1994, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated ARMs Fund at August 31, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented
therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 6, 1994
29
ADDRESSES
- --------------------------------------------------------------------------------
Federated ARMs Fund
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Custodian
State Street Bank and
Trust Company P.O. Box 8604
Boston, Massachusetts 02266-8604
- --------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing
Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Legal Counsel
Houston, Houston &
Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- --------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro &
Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- --------------------------------------------------------------------------------
30
- --------------------------------------------------------------------------------
FEDERATED ARMS FUND
INSTITUTIONAL SHARES
PROSPECTUS
A Diversification Portfolio of
Federated ARMs Fund,
an Open-End Management
Investment Company
October 31, 1994
[LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
[LOGO]
RECYCLED
314082108 PAPER
8100309A-IS (10/94)
- --------------------------------------------------------------------------------
FEDERATED ARMS FUND
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares offered by this prospectus represent
interests in a diversified portfolio of securities (the "Fund") of
Federated ARMs Fund (the "Trust"). The Trust is an open-end management
investment company (a mutual fund).
The investment objective of the Fund is to provide current income
consistent with minimal volatility of principal. The Fund concentrates
at least 65% of the value of its total assets in adjustable and
floating rate mortgage securities ("ARMs") which are issued or
guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in Institutional Service Shares of the Fund. Keep
this prospectus for future reference.
The Fund has also filed a Combined Statement of Additional Information
for Institutional Service Shares and Institutional Shares dated
October 31, 1994, with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Combined Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information
or to make inquiries about the Fund, contact the Fund at the address
listed in the back of this prospectus.
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 October 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- --------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- --------------------------------------------------
GENERAL INFORMATION 3
- --------------------------------------------------
INVESTMENT INFORMATION 3
- --------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 8
TRUST INFORMATION 9
- --------------------------------------------------
Management of the Trust 9
Distribution of Institutional Service
Shares 10
Administration of the Fund 11
Expenses of the Fund and
Institutional Service Shares 11
NET ASSET VALUE 12
- --------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE
SHARES 12
- --------------------------------------------------
Share Purchases 12
Minimum Investment Required 13
What Shares Cost 13
Exchanging Securities for
Institutional Service Shares 13
Subaccounting Services 13
Certificates and Confirmations 13
Dividends 14
Capital Gains 14
REDEEMING INSTITUTIONAL SERVICE SHARES 14
- --------------------------------------------------
Telephone Redemption 14
Written Requests 14
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
- --------------------------------------------------
Voting Rights 15
Massachusetts Partnership Law 16
TAX INFORMATION 16
- --------------------------------------------------
Federal Income Tax 16
Pennsylvania Corporate and Personal
Property Taxes 16
PERFORMANCE INFORMATION 17
- --------------------------------------------------
OTHER CLASSES OF SHARES 17
- --------------------------------------------------
FINANCIAL STATEMENTS 18
- --------------------------------------------------
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 29
- --------------------------------------------------
ADDRESSES 30
- --------------------------------------------------
I
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............................................................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)............................................................. None
Contingent Deferred Sales Charge (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
<CAPTION>
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)................................................................. 0.46%
12b-1 Fee (after waiver) (2)...................................................................... 0.01%
Total Other Expenses.............................................................................. 0.33%
Shareholder Services Fee (3)......................................................... 0.24%
Total Institutional Service Shares Operating Expenses (4)..................................... 0.80%
<FN>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.60%.
(2) The maximum 12b-1 fee is 0.25%.
(3) The maximum shareholder services fee is 0.25%.
(4) The Total Institutional Service Shares Operating Expenses in the table
above are based on expenses expected during the fiscal year ending August
31, 1995. The Total Institutional Service Shares Operating Expenses were
0.80% for the fiscal year ended August 31, 1994, and would have been 1.03%
absent the voluntary waivers of a portion of the management fee and a
portion of the 12b-1 fee.
</TABLE>
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL
SERVICE SHARES" AND "TRUST 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 charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period............................................ $8 $26 $44 $99
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Fund. The Fund also offers another class of
shares called Institutional Shares. Institutional Service Shares and
Institutional Shares are subject to certain of the same expenses; however,
Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of
Shares."
1
FEDERATED ARMS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 29.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------
1994 1993 1992*
- ------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.98 $ 10.01 $ 9.98
- ------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------------------
Net investment income 0.42 0.48 0.18
- ------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.35) (0.03) 0.03
- ------------------------------------------------------------ --------- --------- ---------
Total from investment operations 0.07 0.45 0.21
- ------------------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------------------
Dividends to shareholders from net investment income (0.42) (0.48) (0.18)
- ------------------------------------------------------------ --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.63 $ 9.98 $ 10.01
- ------------------------------------------------------------ --------- --------- ---------
TOTAL RETURN+ 0.74% 4.56% 2.11%
- ------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------------------
Expenses 0.80% 0.76% 0.76% (a)
- ------------------------------------------------------------
Net investment income 4.26% 4.72% 5.46% (a)
- ------------------------------------------------------------
Expense waiver/reimbursement (b) 0.23% 0.21% 0.32% (a)
- ------------------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------------------
Net assets, end of period (000 omitted) $255,891 $499,418 $113,095
- ------------------------------------------------------------
Portfolio turnover rate 65% 36% 38%
- ------------------------------------------------------------
<FN>
* Reflects operations for the period from May 4, 1992 (date of initial public
investment of Institutional Service Shares) to August 31, 1992.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
+ Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year-ended August 31, 1994, which can be obtained
free of charge.
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated May 24, 1985. The Declaration of Trust permits the Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Board of Trustees (the "Trustees") have established two classes
of shares, Institutional Service Shares and Institutional Shares. This
prospectus relates only to Institutional Service Shares (the "Shares") of the
Fund.
Shares of the Fund are designed to give banks and other institutions that hold
assets in an agency capacity and rely upon the distribution services provided by
the distributor for the marketing of these Shares, as well as to retail
customers of such institutions, a convenient means of accumulating an interest
in a professionally managed, diversified portfolio which invests at least 65% of
the value of its total assets in U.S. government securities, all of which
government securities will be adjustable and floating rate mortgage securities
which are issued or guaranteed as to payment of principal and interest by the
U.S. government, its agencies or instrumentalities. In addition, the Fund is
designed to provide an appropriate investment for particular financial
institutions which are subject to government agency regulations, including
credit unions, savings associations, and national banks. A minimum initial
investment of $25,000 over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with minimal volatility of principal. Current income includes, in general,
discount earned on U.S. Treasury bills and agency discount notes, interest
earned on mortgage related securities and other U.S. government securities, and
short-term capital gains. The investment objective cannot be changed without
approval of shareholders. The Fund anticipates that it will experience minimal
volatility of principal due to the frequent adjustments to interest rates on
adjustable and floating rate mortgage securities which comprise the portfolio.
Of course, there can be no assurance that the Fund will be able to maintain
minimal volatility of principal or that it will achieve its investment
objective. The Fund endeavors to achieve its investment objective, however, by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
Except as otherwise noted, the investment policies described below may not be
changed by the Trustees without shareholder approval.
The Fund will limit its investments to those that are permitted for purchase by
federal savings associations pursuant to applicable rules, regulations, or
interpretations of the Office of Thrift
3
Supervision and by federal credit unions under the Federal Credit Union Act and
the rules, regulations, and interpretations of the National Credit Union
Administration (the "NCUA"). Should additional permitted investments be allowed
as a result of future changes in applicable regulations or federal laws, the
Fund reserves the right, without shareholder approval, to make such investments
consistent with the Fund's investment objective, policies, and limitations.
Further, should existing statutes or regulations change so as to cause any
securities held by the Fund to become ineligible for purchase by federal savings
associations or federal credit unions, the Fund will dispose of those securities
at times advantageous to the Fund.
As operated within the above limitations, and pursuant to the Fund's investment
policy, which may be changed without shareholder approval, to limit its
investments to securities that are appropriate direct investments for national
banks, the Fund will also serve as an appropriate vehicle for a national bank as
an investment for its own account.
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
at least 65% of the value of its total assets in a professionally managed
portfolio of U.S. government securities. As a matter of investment policy, which
may be changed without shareholder approval, all of these U.S. government
securities will be adjustable and floating rate mortgage securities which are
issued or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities.
The types of mortgage securities in which the Fund may invest include the
following:
- adjustable rate mortgage securities;
- collateralized mortgage obligations;
- real estate mortgage investment conduits; and
- other securities collateralized by or representing interests in real
estate mortgages whose interest rates reset at periodic intervals and are
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
In addition to the securities described above, the Fund may also invest in
direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and
bonds, as well as obligations of U.S. government agencies or instrumentalities
which are not collateralized by or represent interests in real estate mortgages,
as described above.
The Fund may also invest in mortgage related securities, as defined in section
3(a)(41) of the Securities Exchange Act of 1934, which are issued by private
entities such as investment banking firms and companies related to the
construction industry. The privately issued mortgage related securities in which
the Fund may invest include:
- privately issued securities which are collateralized by pools of mortgages
in which each mortgage is guaranteed as to payment of principal and
interest by an agency or instrumentality of the U.S. government;
4
- privately issued securities which are collateralized by pools of mortgages
in which payment of principal and interest are guaranteed by the issuer
and such guarantee is collateralized by U.S. government securities; and
- other privately issued securities in which the proceeds of the issuance
are invested in mortgage-backed securities and payment of the principal
and interest are supported by the credit of any agency or instrumentality
of the U.S. government.
The privately issued mortgage related securities provide for a periodic payment
consisting of both interest and principal. The interest portion of these
payments will be distributed by the Fund as income, and the capital portion will
be reinvested.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are pass-through mortgage
securities with adjustable rather than fixed interest rates. The ARMS in which
the Fund invests are issued by Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), and Federal Home Loan
Mortgage Corporation ("FHLMC") and are actively traded. The underlying mortgages
which collateralize ARMS issued by GNMA are fully guaranteed by the Federal
Housing Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
Unlike conventional bonds, ARMS pay back principal over the life of the ARMS
rather than at maturity. Thus, a holder of the ARMS, such as the Fund, would
receive monthly scheduled payments of principal and interest and may receive
unscheduled principal payments representing payments on the underlying
mortgages. At the time that a holder of the ARMS reinvests the payments and any
unscheduled prepayments of principal that it receives, the holder may receive a
rate of interest which is actually lower than the rate of interest paid on the
existing ARMS. As a consequence, ARMS may be a less effective means of "locking
in" long-term interest rates than other types of U.S. government securities.
Not unlike other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the market
value of ARMS generally declines when interest rates rise and generally rises
when interest rates decline.
While ARMS generally entail less risk of a decline during periods of rapidly
rising rates, ARMS may also have less potential for capital appreciation than
other similar investments (e.g. investments with comparable maturities) because,
as interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if ARMS are purchased at a premium, mortgage foreclosures
and unscheduled principal payments may result in some loss of a holder's
principal investment to the extent of the premium paid. Conversely, if ARMS are
purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal would increase current and total returns and
would accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are bonds issued by
single-purpose, stand-alone finance subsidiaries or trusts of financial
institutions, government agencies, investment bankers, or companies related to
the construction industry. CMOs purchased by the Fund may be:
5
- collateralized by pools of mortgages in which each mortgage is guaranteed
as to payment of principal and interest by an agency or instrumentality of
the U.S. government;
- collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or
- securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the
credit of an agency or instrumentality of the U.S. government.
The Fund will only purchase CMO's which are investment grade, as rated by a
nationally recognized statistical rating organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"). REMICs are offerings of
multiple class real estate mortgage-backed securities which qualify and elect
treatment as such under provisions of the Internal Revenue Code. Issuers of
REMICs may take several forms, such as trusts, partnerships, corporations,
associations or a segregated pool of mortgages. Once REMIC status is elected and
obtained, the entity is not subject to federal income taxation. Instead, income
is passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more classes of
"regular interests," some of which may offer adjustable rates (the type in which
the Fund primarily invests), and a single class of "residual interests." To
qualify as a REMIC, substantially all of the assets of the entity must be in
assets directly or indirectly secured principally by real property.
REGULATORY COMPLIANCE. In accordance with the Rules and Regulations of the
NCUA, unless the purchase is made solely to reduce interest-rate risk, the Fund
will not invest in any CMO or REMIC security that meets any of the following
three tests: (1) the CMO or REMIC has an expected average life greater than 10
years; (2) the average life of the CMO or REMIC extends by more than 4 years
assuming an immediate and sustained parallel shift in the yield curve of plus
300 basis points, or shortens by more than 6 years assuming an immediate and
sustained parallel shift in the yield curve of minus 300 basis points; or (3)
the estimated change in the price of the CMO or REMIC is more than 17%, due to
an immediate and sustained parallel shift in the yield curve of plus or minus
300 basis points.
Neither test (1) nor (2) above apply to floating or adjustable rate CMOs or
REMICs with all of the following characteristics: (a) the interest rate of the
instrument is reset at least annually; (b) the interest rate is below the
contractual cap of the instrument; (c) the instrument is tied to a widely-used
market rate; and (d) the instrument varies directly (not inversely) and is reset
in proportion with the index's changes.
The Fund may not purchase a residual interest in a CMO or REMIC. In addition,
the Fund will not purchase zero coupon securities with maturities greater than
10 years.
RESETS. The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund
invests generally are readjusted or reset at intervals of one year or less to an
increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a
6
moving average of mortgage rates. Commonly utilized indices include the one-year
and five-year constant maturity Treasury Note rates, the three-month Treasury
Bill rate, the 180-day Treasury Bill rate, rates on longer-term Treasury
securities, the National Median Cost of Funds, the one-month or three-month
London Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant maturity
Treasury Note rate, closely mirror changes in market interest rate levels.
Others tend to lag changes in market rate levels and tend to be somewhat less
volatile.
CAPS AND FLOORS. The underlying mortgages which collateralize the ARMS, CMOs,
and REMICs in which the Fund invests will frequently have caps and floors which
limit the maximum amount by which the loan rate to the residential borrower may
change up or down: (1) per reset or adjustment interval and (2) over the life of
the loan. Some residential mortgage loans restrict periodic adjustments by
limiting changes in the borrower's monthly principal and interest payments
rather than limiting interest rate changes. These payment caps may result in
negative amortization.
The value of mortgage securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. An example of the effect of
caps and floors on a residential mortgage loan may be found in the Combined
Statement of Additional Information. Additionally, even though the interest
rates on the underlying residential mortgages are adjustable, amortization and
prepayments may occur, thereby causing the effective maturities of the mortgage
securities in which the Fund invests to be shorter than the maturities stated in
the underlying mortgages.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest
temporarily in cash and money market instruments during times of unusual market
conditions and to maintain liquidity. Money market instruments may include
obligations such as:
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition. 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.
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 Trustees and will receive collateral in the form of cash
or U.S. government securities equal to at least 100% of the value of the
securities loaned.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases
7
securities with payment and delivery scheduled for a future time. The seller's
failure to complete these transactions may cause the Fund to miss a price or
yield considered to be advantageous. Settlement dates may be a month or more
after entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay
more/less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
PORTFOLIO TURNOVER. The Fund does not intend to invest for the purpose of
seeking short-term profits, however securities in its portfolio will be sold
whenever the Fund's investment adviser believes it is appropriate to do so in
light of the Fund's investment objective, without regard to the length of time a
particular security may have been held.
INVESTMENT LIMITATIONS
The Fund will not:
- invest in stripped mortgage securities, including securities which
represent a share of only the interest payments or only the principal
payments from underlying mortgage related securities;
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its net assets and pledge up to
10% of the value of its total assets to secure such borrowings;
- lend any of its assets except portfolio securities up to one-third of the
value of its total assets; or
- invest more than 5% of the value of its total assets in securities of
issuers which have records of less than three years of continuous
operations, including the operation of any predecessor. With respect to
the asset-backed securities, the Fund will treat the originator of the
asset pool as the company issuing the securities for purposes of
determining compliance with this limitation.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
- invest more than 15% of its net assets in securities which are illiquid,
including repurchase agreements providing for settlement in more than
seven days after notice.
8
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. 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 Adviser receives an annual investment advisory fee equal to
.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse the Fund for certain operating
expenses. This does not include reimbursement to the Fund of any expenses
incurred by shareholders who use the transfer agent's subaccounting facilities.
The Adviser can terminate this voluntary waiver of its advisory fee at any time
in 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 Management, 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,
President and Trustee of Federated Investors.
Federated Management 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 and Susan M. Nason are the Fund's co-portfolio managers. Gary J.
Madich has been the Fund's co-portfolio manager since January 1992. Mr. Madich
joined Federated Investors in 1984 and has been a Senior Vice President of the
Fund's investment adviser since 1993. Mr. Madich served as a Vice President of
the Fund's investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the University
of Pittsburgh.
Susan M. Nason has been the Fund's co-portfolio manager since December 1993. Ms.
Nason joined Federated Investors in 1987 and has been a Vice President of the
Fund's investment adviser since
9
1993. Ms. Nason served as an Assistant Vice President of the investment adviser
from 1990 until 1992, and from 1987 until 1990 she acted as an investment
analyst. Ms. Nason is a Chartered Financial Analyst and received her M.B.A. in
Finance from Carnegie-Mellon University.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
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 AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund will pay to the distributor an amount, computed at an annual rate of up
to .25 of 1% of the average daily net asset value of the Shares, to finance any
activity which is principally intended to result in the sale of Shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of the Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Trustees 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 law.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
certain financial institutions may
10
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 or by the
assessment of a sales charge on Shares.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors (the "Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is the transfer agent for the Shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
The Fund pays all of its own expenses. Holders of Shares pay their allocable
portion of Fund and Trust expenses. The Trust expenses for which holders of
Shares pay their allocable portion include, but are not limited to: the cost of
organizing the Trust and continuing its existence; registering the Trust with
federal and state securities authorities, Trustees' fees, the cost of meetings
of Trustees, legal fees of the Trust, association membership dues, and such
non-recurring and extraordinary items as may arise.
The Fund expenses for which holders of Shares 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.
11
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's Rule 12b-1 Plan, which relates to the Shares. However, the
Trustees reserve the right to allocate certain expenses to holders of Shares as
they deem appropriate (the "Class Expenses"). In any case, the Class Expenses
would be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses,
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Fund, subtracting the interest of the Shares
in the liabilities of the Fund and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares will exceed that of Shares due to the variance in daily net
income realized by each class as a result of different distribution charges
incurred by the classes. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased either by wire or mail.
To purchase Shares of the Fund, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone. The Fund reserves the right to reject any purchase request.
BY WIRE. To purchase Shares of the Fund by Federal Reserve wire, call the Fund
before 4:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: State Street Bank and Trust Company, Boston,
Massachusetts; Attention: EDGEWIRE; For Credit to: Federated ARMs
Fund--Institutional Service Shares; Fund Number (this number can be found on the
account statement or by contacting the Fund); Group Number or Order Number;
Nominee or Institution Name; ABA Number 011000028. Shares cannot be purchased on
days on which the New York Stock Exchange is closed and on federal holidays
restricting wire transfers.
BY MAIL. To purchase Shares of the Fund by mail, send a check made payable to
Federated ARMs Fund-Institutional Service Shares to the Fund's transfer agent,
Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box
8604, Boston, Massachusetts 02266-8604. Orders by mail are
12
considered received after payment by check is converted by the transfer agent's
bank, State Street Bank, into federal funds. This is normally the next business
day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000 plus any non-affiliated
bank or broker's fee, if applicable. However, an account may be opened with a
smaller amount as long as the $25,000 minimum is reached within 90 days. An
institutional investor's minimum investment will be calculated by combining all
accounts it maintains with the Fund. Accounts established through a non-
affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
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 on which no Shares are tendered for redemption
and no orders to purchase Shares are received; and (iii) the following holidays:
New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
EXCHANGING SECURITIES FOR INSTITUTIONAL SERVICE SHARES
Investors may exchange certain U.S. government securities or a combination of
securities and cash for Shares. The securities and any cash must have a market
value of at least $25,000. The Fund reserves the right to determine the
acceptability of securities to be exchanged. Securities accepted by the Fund are
valued in the same manner as the Fund values its assets. Shareholders wishing to
exchange securities should first contact Federated Securities Corp.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
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
by contacting the Fund.
13
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted, upon instruction of
the transfer agent, into federal funds. Dividends are automatically reinvested
on payment dates in additional Shares of the Fund unless cash payments are
requested by contacting the Fund.
CAPITAL GAINS
Capital gains realized by the Fund, if any, will be distributed at least once
every twelve months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 4:00 p.m.
(Eastern time). The proceeds will normally be wired the following business day,
but in no event longer than seven days later, to the shareholder's account at a
domestic commercial bank that is a member of the Federal Reserve System. If at
any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, the shareholders may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as that discussed in "Written Requests,"
should be considered.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, the class of Shares,
his account number, and the share or dollar amount
14
requested. If Share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request.
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
Exchanges;
- 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 and its transfer agent reserve
the right to amend these standards at any time without notice.
RECEIVING PAYMENT. 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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $25,000 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of each portfolio
in the Trust have equal voting rights except that, in matters affecting only a
particular Fund or class, only shares of that particular Fund or class are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for the election of Trustees
under certain circumstances.
15
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Fund shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares of
all portfolios entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because the Fund expects to meet
requirements of the Internal Revenue Code, as amended, 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 related by the
Trust'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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- the Fund is not subject to the Pennsylvania corporate or personal property
tax; and
- Shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that
the Fund's portfolio securities would be subject to such taxes if owned
directly by residents of those jurisdictions.
16
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
Institutional Service Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Institutional Service Shares after reinvesting all
income and capital gain distributions. It is calculated by dividing that change
by the initial investment and is expressed as a percentage.
The yield of Institutional Service Shares is calculated by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by Institutional Service Shares over a thirty-day period by
the offering price per share of Institutional Service 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 Institutional
Service Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The Institutional Service Shares are sold without any sales load or other
similar non-recurring charges.
Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares. Because Institutional Service Shares are
subject to 12b-1 fees, total return and yield of Institutional Shares, for the
same period, will exceed that of Institutional Service Shares.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are sold primarily to accounts for which financial
institutions act in a fiduciary or agency capacity, and other accounts where a
financial institution maintains master accounts with an aggregate investment of
at least $400 million in certain mutual funds which are advised or distributed
by affiliates of Federated Investors. Shares are also made available to
financial intermediaries, public, and private organizations. A minimum initial
investment of $25,000 over a 90-day period is required. Institutional Shares are
sold at net asset value and are distributed without a Rule 12b-1 Plan.
Financial institutions and brokers providing sales and/or administrative
services may receive different compensation from one class of shares than from
another class of shares.
The amount of dividends payable to holders of Institutional Shares will exceed
that of Institutional Service Shares by the difference between class expenses
and distribution and shareholder service expenses borne by shares of each
respective class.
The stated advisory fee is the same for both classes of shares.
17
FEDERATED ARMS FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 29.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986*
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 9.98 $ 10.01 $ 9.67 $ 8.99 $ 9.47 $ 8.88 $ 8.99 $ 9.98 $ 10.00
- ------------
INCOME FROM
INVESTMENT
OPERATIONS
- ------------
Net
investment
income 0.45 0.50 0.63 0.69 0.71 0.72 0.73 0.78 0.62
- ------------
Net
realized
and
unrealized
gain
(loss) on
investments (0.35) (0.03) 0.42 0.68 (0.48) 0.59 (0.11) (0.99) (0.02)
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total from
investment
operations 0.10 0.47 1.05 1.37 0.23 1.31 0.62 (0.21) 0.60
- ------------
LESS
DISTRIBUTIONS
- ------------
Dividends
to
shareholders
from net
investment
income (0.45) (0.50) (0.63) (0.69) (0.71) (0.72) (0.73) (0.78) (0.62)
- ------------
Distributions
to
shareholders
from net
realized
gain on
investment
transactions -- -- (0.08) -- -- -- -- -- --
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total
distributions (0.45) (0.50) (0.71) (0.69) (0.71) (0.72) (0.73) (0.78) (0.62)
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
NET ASSET
VALUE, END
OF PERIOD $ 9.63 $ 9.98 $ 10.01 $ 9.67 $ 8.99 $ 9.47 $ 8.88 $ 8.99 $ 9.98
- ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL
RETURN+ .99% 4.82% 11.21% 15.73% 2.45% 15.25% 7.09% (2.33)% 6.16%
- ------------
RATIOS TO
AVERAGE NET
ASSETS
- ------------
Expenses 0.55% 0.51% 0.51% 0.78% 0.78% 0.79% 0.75% 0.81%
0.96%(a)
- ------------
Net
investment
income 4.51% 4.97% 5.95% 7.36% 7.62% 7.81% 8.10% 7.88%
9.84%(a)
- ------------
Expenses
waiver/reimbursement
(b) 0.14% 0.21% 0.32% 1.02% 1.02% 0.95% 1.18% 0.75%
1.50%(a)
- ------------
SUPPLEMENTAL
DATA
- ------------
Net
assets,
end of
period
(000
omitted) $1,238,813 $2,669,888 $1,090,944 $30,330 $26,261 $25,574 $16,753 $7,405 $5,433
- ------------
Porfolio
turnover
rate 65% 36% 38% 127% 170% 85% 125% 228% 89%
- ------------
<FN>
* Reflects operations for the period from December 3, 1985 to August 31, 1986.
For the period from the start of business, November 18, 1985, to December 2,
1985, net investment income aggregating $0.030 per share ($300) was
distributed to the Fund's investment adviser. Such distribution represented
the net investment income of the Fund prior to the initial public offering of
Fund shares, which commenced December 3, 1985.
+ Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year-ended August 31, 1994, which can be obtained
free of charge.
18
FEDERATED ARMS FUND
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------- --------------
<C> <S> <C>
GOVERNMENT AGENCY OBLIGATIONS--82.3%
- -------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. PC ADJUSTABLE
RATE MORTGAGE--42.7%
-------------------------------------------------
$624,668,640 4.352%-7.667%, 5/1/2016-9/1/2032 $ 638,350,567
------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION ADJUSTABLE
RATE MORTGAGE--29.0%
-------------------------------------------------
423,871,989 4.021%-11.50%, 3/1/2016-1/1/2029 433,441,829
------------------------------------------------- --------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
ADJUSTABLE RATE MORTGAGE--2.7%
-------------------------------------------------
39,811,058 6.50%-6.75%, 6/20/2022-7/20/2024 40,004,848**
------------------------------------------------- --------------
FEDERAL HOME LOAN MORTGAGE CORP. REMIC--2.2%
-------------------------------------------------
1,914,926 5.325%, Series 4-4A, 5/15/2019 1,921,819
-------------------------------------------------
18,876,700 6.45%, Series 1578-FE, 7/15/2022 18,522,762
-------------------------------------------------
12,057,750 10.15%, Series MH1-A, 4/15/2006 12,540,421
------------------------------------------------- --------------
Total 32,985,002
------------------------------------------------- --------------
FEDERAL HOME LOAN MORTGAGE CORP.--0.3%
-------------------------------------------------
4,459,053 11.50%, 5/1/2019 4,903,531
------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--1.3%
-------------------------------------------------
6,724,849 5.262%, Series G91-15F, 6/25/2021 6,697,815
-------------------------------------------------
5,906,659 5.412%, Series G92-16F, 3/25/2022 5,906,541
-------------------------------------------------
6,446,578 5.412%, Series G92-21F, 4/25/2022 6,443,935
------------------------------------------------- --------------
Total 19,048,291
------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--0.5%
-------------------------------------------------
6,220,900 11.50%, 2/1/2020 6,905,199
------------------------------------------------- --------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--3.6%
-------------------------------------------------
48,520,008 11.00%-12.00%, 12/15/2009-7/15/2020 54,509,624
------------------------------------------------- --------------
TOTAL GOVERNMENT AGENCY OBLIGATIONS
(IDENTIFIED COST, $1,238,530,140) 1,230,148,891
------------------------------------------------- --------------
</TABLE>
19
FEDERATED ARMS FUND
- ---------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- --------------- ------------------------------------------------- --------------
<C> <S> <C>
TREASURY OBLIGATIONS--10.9%
- -------------------------------------------------------------------
U.S. TREASURY BILLS--3.2%
-------------------------------------------------
$ 50,000,000 8/24/95 $ 47,413,000
------------------------------------------------- --------------
U.S. TREASURY NOTES--7.7%
-------------------------------------------------
115,000,000 5.875%-6.125%, 5/31/96-7/31/96 114,924,350
------------------------------------------------- --------------
TOTAL TREASURY OBLIGATIONS
(IDENTIFIED COST, $162,220,547) 162,337,350
------------------------------------------------- --------------
*REPURCHASE AGREEMENTS--7.2%
- -------------------------------------------------------------------
20,000,000(a) Goldman Sachs & Co., 4.71%, dated 8/23/94, due
9/26/94 20,000,000
------------------------------------------------- --------------
7,640,000 J.P. Morgan Securities, Inc., 4.85%, dated
8/31/94, due 9/1/94 7,640,000
------------------------------------------------- --------------
80,000,000 Kidder, Peabody & Co., Inc., 4.80%, dated
8/31/94, due 9/1/94 80,000,000
------------------------------------------------- --------------
TOTAL REPURCHASE AGREEMENTS
(AMORTIZED COST) 107,640,000
------------------------------------------------- --------------
TOTAL INVESTMENTS
(IDENTIFIED COST, $1,508,390,687) $1,500,126,241+
------------------------------------------------- --------------
</TABLE>
<TABLE>
<C> <S>
<FN>
(a) Although final maturity falls beyond seven days a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
* The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investment in the repurchase agreements are through
participation in joint accounts with other Federated funds.
** Includes security with a market value of $20,025,000, subject to Dollar
Roll transactions.
+ The cost of investments for federal tax purposes amounts to
$1,508,390,687. The net unrealized depreciation of investments on a
federal tax cost basis amounts to $8,264,446 which is comprised of
$2,611,483 appreciation and $10,875,929 depreciation at August 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($1,494,704,025) at August 31, 1994.
</TABLE>
<TABLE>
<S> <C>
The following abbreviations are used in this portfolio:
PC --Participation Certificate
REMIC --Real Estate Mortgage Investment Conduit
</TABLE>
(See Notes which are integral part of the Financial Statements)
20
FEDERATED ARMS FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments, at value (identified and tax cost; $1,508,390,687) $1,500,126,241
- --------------------------------------------------------------------------------
Cash 129,432
- --------------------------------------------------------------------------------
Interest receivable 10,977,347
- --------------------------------------------------------------------------------
Receivable for investments sold 12,363,951
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 29,238
- -------------------------------------------------------------------------------- --------------
Total assets 1,523,626,209
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Payable for Dollar Roll transactions $19,950,919
- ----------------------------------------------------------------------
Dividends payable 5,479,538
- ----------------------------------------------------------------------
Payable for Fund shares redeemed 3,304,855
- ----------------------------------------------------------------------
Accrued expenses 186,872
- ---------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<S> <C>
Total liabilities 28,922,184
- -------------------------------------------------------------------------------- --------------
NET ASSETS for 155,173,964 shares of beneficial interest outstanding $1,494,704,025
- -------------------------------------------------------------------------------- --------------
NET ASSETS CONSIST OF:
- --------------------------------------------------------------------------------
Paid-in capital $1,573,572,622
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments (8,264,446)
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (70,604,151)
- -------------------------------------------------------------------------------- --------------
Total Net Assets $1,494,704,025
- -------------------------------------------------------------------------------- --------------
NET ASSET VALUE, Offering Price and Redemption Proceeds per Share:
- --------------------------------------------------------------------------------
Institutional Shares (net assets of $1,238,812,594 DIVIDED BY 128,609,253 shares
of beneficial interest outstanding) $ 9.63
- -------------------------------------------------------------------------------- --------------
Institutional Service Shares (net assets of $255,891,431 DIVIDED BY 26,564,711
shares of beneficial interest outstanding) $ 9.63
- -------------------------------------------------------------------------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
21
FEDERATED ARMS FUND
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------------
Interest income (net of interest expense of $89,107) $ 123,828,567
- ------------------------------------------------------------------------------------------
EXPENSES--
- ------------------------------------------------------------------------------------------
Investment advisory fee $ 14,679,639
- --------------------------------------------------------------------------
Trustees' fees 24,136
- --------------------------------------------------------------------------
Administrative personnel and services 1,429,050
- --------------------------------------------------------------------------
Custodian and portfolio accounting fees 458,202
- --------------------------------------------------------------------------
Distribution services fees 1,097,576
- --------------------------------------------------------------------------
Shareholder services fees--Institutional Service Shares 395,231
- --------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 87,603
- --------------------------------------------------------------------------
Fund share registration costs 67,813
- --------------------------------------------------------------------------
Auditing fees 19,913
- --------------------------------------------------------------------------
Legal fees 41,667
- --------------------------------------------------------------------------
Insurance premiums 47,118
- --------------------------------------------------------------------------
Printing and postage 20,903
- --------------------------------------------------------------------------
Taxes 19,359
- --------------------------------------------------------------------------
Miscellaneous 20,211
- -------------------------------------------------------------------------- ------------
Total expenses 18,408,421
- --------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fees $ 3,459,009
- ------------------------------------------------------------
Waiver of distribution services fees 395,231 3,854,240
- ------------------------------------------------------------ ----------- ------------
Net expenses 14,554,181
- ------------------------------------------------------------------------------------------ -------------
Net investment income 109,274,386
- ------------------------------------------------------------------------------------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (55,879,989)
- ------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (24,269,803)
- ------------------------------------------------------------------------------------------ -------------
Net realized and unrealized gain (loss) on investments (80,149,792)
- ------------------------------------------------------------------------------------------ -------------
Change in net assets resulting from operations $ 29,124,594
- ------------------------------------------------------------------------------------------ -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
22
FEDERATED ARMS FUND
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 109,274,386 $ 102,966,928
- ---------------------------------------------------------------------------
Net realized gain (loss) on investments ($16,735,698 net loss, and
$1,799,433 net loss, respectively, as computed for federal tax purposes) (55,879,989) (14,483,096)
- ---------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of investments (24,269,803) 12,316,539
- --------------------------------------------------------------------------- --------------- ---------------
Change in net assets resulting from operations 29,124,594 100,800,371
- --------------------------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Dividends to shareholders from net investment income:
- ---------------------------------------------------------------------------
Institutional Shares (90,585,086) (90,280,942)
- ---------------------------------------------------------------------------
Institutional Service Shares (18,689,300) (12,685,986)
- --------------------------------------------------------------------------- --------------- ---------------
Change in net assets from distributions to shareholders (109,274,386) (102,966,928)
- --------------------------------------------------------------------------- --------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS
- ---------------------------------------------------------------------------
Proceeds from sales of shares-- 1,886,076,982 3,939,613,668
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends
declared 34,585,437 33,745,129
- ---------------------------------------------------------------------------
Cost of shares redeemed (3,515,114,267) (2,005,925,557)
- --------------------------------------------------------------------------- --------------- ---------------
Change in net assets from Fund share transactions (1,594,451,848) 1,967,433,240
- --------------------------------------------------------------------------- --------------- ---------------
Change in net assets (1,674,601,640) 1,965,266,683
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 3,169,305,665 1,204,038,982
- --------------------------------------------------------------------------- --------------- ---------------
End of period $ 1,494,704,025 $ 3,169,305,665
- --------------------------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
23
FEDERATED ARMS FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated ARMs Fund (the "Fund") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as a diversified, open-end, no-load management
investment company. The Fund provides two classes of shares: Institutional
Shares and Institutional Service Shares.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure that the value of collateral at least equals
the principal amount of the repurchase agreement, including accrued
interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to guidelines established
by the Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provisions for federal tax are necessary. At August 31, 1994, the Fund,
for federal tax purposes, had a capital loss carryforward of $18,535,131,
which will reduce the Fund's taxable income arising from future net realized
gains on investments, if any, to the
24
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
extent permitted by the Code, and thus will reduce the amount of the
distributions to shareholders which would otherwise be necessary to relieve
the Fund of any liability for federal tax. Pursuant to the Code, such
capital loss carryforward will expire in 2001, $1,799,433 and 2002,
$16,735,698. Additionally, net capital losses of $52,068,567, attributable
to security transactions incurred after October 31, 1993, are treated as
arising on September 1, 1994, the first day of the Fund's next taxable year.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
G. DOLLAR ROLL TRANSACTIONS--The Fund enters into dollar roll transactions,
with respect to mortgage securities issued by GNMA, FNMA, and FHLMC, in
which the Fund loans mortgage securities to financial institutions and
simultaneously agrees to accept substantially similar (same type, coupon,
and maturity) securities at a later date at an agreed upon price. Dollar
roll transactions are short-term financing arrangements which will not
exceed twelve months. The Fund will use the proceeds generated from the
transactions to invest in short-term investments that may enhance the Fund's
current yield and total return.
25
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
1994 1993
----------------------------- -----------------------------
INSTITUTIONAL SHARES: SHARES DOLLARS SHARES DOLLARS
- --------------------------------------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold 141,739,864 $ 1,407,584,109 320,888,500 $ 3,198,878,233
- ---------------------------------------------
Shares issued to shareholders in payment of
dividends declared 2,487,150 24,495,269 2,708,639 26,990,753
- ---------------------------------------------
Shares redeemed (283,203,693) (2,797,587,573) (165,001,133) (1,644,713,651)
- --------------------------------------------- ------------ --------------- ------------ ---------------
Net change resulting from Institutional
Shares transactions (138,976,679) ($1,365,508,195) 158,596,006 $ 1,581,155,335
- --------------------------------------------- ------------ --------------- ------------ ---------------
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
1994 1993
----------------------------- -----------------------------
INSTITUTIONAL SERVICE SHARES SHARES DOLLARS SHARES DOLLARS
- --------------------------------------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Shares sold 48,183,748 $ 478,492,873 74,332,361 $ 740,735,435
- ---------------------------------------------
Shares issued to shareholders in payment of
dividends declared 1,024,374 10,090,168 677,755 6,754,376
- ---------------------------------------------
Shares redeemed (72,696,731) (717,526,694) (36,255,451) (361,211,906)
- --------------------------------------------- ------------ --------------- ------------ ---------------
Net change resulting from Institutional
Service Shares transactions (23,488,609) (228,943,653) 38,754,665 386,277,905
- --------------------------------------------- ------------ --------------- ------------ ---------------
Net change resulting from Fund share
transactions (162,465,288) ($1,594,451,848) 197,350,671 $ 1,967,433,240
- --------------------------------------------- ------------ --------------- ------------ ---------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .60 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
26
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of the funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during the period of the Administrative Services Agreement shall be at
least $125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's Institutional Service Shares. The Plan provides
that the Fund may incur distribution expenses up to .25 of 1% of the average
daily net assets of the Institutional Service Shares, annually, to compensate
FSC. The distributor may voluntarily choose to waive its fee. The distributor
can modify or terminate this voluntary waiver at any time at its sole
discretion.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS"), the Fund will pay FSS up to .25 of 1% of average daily net
assets of each class of shares for the period. This fee is to obtain certain
personal services for shareholders and to maintain shareholder accounts.
For the fiscal year ended August 31, 1994, Institutional Shares did not incur a
shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type, and number of accounts and transactions
made by shareholders.
INTERFUND TRANSACTIONS--During the period ended August 31, 1994, the Fund
engaged in purchase and sale transactions with other affiliated funds pursuant
to Rule 17a-7 under the Act, amounting to $588,256,901 and $703,344,890,
respectively. These purchases and sales were conducted on an arms length basis
and transacted for cash consideration only, at independent current market
prices, and without brokerage commissions, fees, or other remuneration.
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
27
FEDERATED ARMS FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended August 31, 1994, were as follows:
<TABLE>
<S> <C>
PURCHASES--
- --------------------------------------------------
U.S. government obligations $1,551,633,178
- -------------------------------------------------- --------------
SALES AND MATURITIES
- --------------------------------------------------
U.S. government obligations $2,609,061,586
- -------------------------------------------------- --------------
</TABLE>
28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ---------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED ARMs FUND:
We have audited the accompanying statement of assets and liabilities of
Federated ARMs Fund, including the portfolio of investments, as of August 31,
1994, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for the periods presented therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1994, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated ARMs Fund at August 31, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for the periods presented
therein, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
October 6, 1994
29
ADDRESSES
- --------------------------------------------------------------------------------
Federated ARMs Fund
Institutional Service
Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Distributor
Federated Securities
Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Custodian
State Street Bank and
Trust Company P.O. Box 8604
Boston, Massachusetts 02266-8604
- --------------------------------------------------------------------------------
Transfer Agent and Dividend
Disbursing Agent
Federated Services
Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- --------------------------------------------------------------------------------
Legal Counsel
Houston, Houston &
Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- --------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro &
Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- --------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
30
- --------------------------------------------------------------------------------
FEDERATED ARMS FUND
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Diversification Portfolio of
Federated ARMs Fund,
an Open-End Management
Investment Company
October 31, 1994
[LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
[LOGO]
RECYCLED
314082207 PAPER
8100309A-SS (10/94)
FEDERATED ARMS FUND
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectus for Institutional Shares or Institutional
Service Shares of Federated ARMs Fund (the "Fund") dated October 31,
1994. This Combined Statement is not a prospectus itself. To receive
a copy of either prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 31, 1994
[LOGO]
Distributor
A Subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------
Types of Investments 1
When-Issued and Delayed Delivery
Transactions 2
Repurchase Agreements 2
Lending of Portfolio Securities 2
Reverse Repurchase Agreements 2
Portfolio Turnover 2
INVESTMENT LIMITATIONS 3
- ---------------------------------------------------------
Stripped Mortgage Securities 3
Buying on Margin 3
Issuing Senior Securities and Borrowing
Money 3
Pledging Assets 3
Diversification of Investments 3
Investing in Real Estate 3
Investing in Commodities 3
Underwriting 3
Lending Cash or Securities 3
Selling Short 3
Investing in Illiquid Securities 3
Investing in Securities of Other Investment
Companies 4
Investing in New Issuers 4
FEDERATED ARMS FUND MANAGEMENT 4
- ---------------------------------------------------------
THE FUNDS 7
- ---------------------------------------------------------
Fund Ownership 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
- ---------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
State Expense Limitations 8
Other Related Services 8
ADMINISTRATIVE SERVICES 9
- ---------------------------------------------------------
Brokerage Transactions 9
PURCHASING SHARES 9
- ---------------------------------------------------------
Distribution Plan (Institutional Service
Shares
only) and Shareholder Services Plan 9
Conversion to Federal Funds 10
DETERMINING NET ASSET VALUE 10
- ---------------------------------------------------------
Determining Value of Securities 10
REDEEMING SHARES 10
- ---------------------------------------------------------
EXCHANGING SECURITIES FOR FUND SHARES 10
- ---------------------------------------------------------
Tax Consequences 11
TAX STATUS 11
- ---------------------------------------------------------
The Fund's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 11
- ---------------------------------------------------------
YIELD 11
- ---------------------------------------------------------
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------
I
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
Federated ARMs Fund (the "Fund") was established as a Massachusetts business
trust under a Declaration of Trust dated May 24, 1985. The Declaration of Trust
permits the Fund to offer separate series and classes of shares.
Shares of the Fund are offered in two classes, Institutional Service Shares and
Institutional Shares (individually and collectively referred to as "Shares").
This Combined Statement of Additional Information relates to the above-mentioned
Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income consistent with
minimal volatility of principal. Current income includes, in general, discount
earned on U.S. Treasury bills and agency discount notes, interest earned on
mortgage-related securities and other U.S. government securities, and short-term
capital gains. The investment objective cannot be changed without approval of
shareholders. The Fund anticipates that it will experience minimal volatility of
principal due to the frequent adjustments to interest rates on adjustable and
floating rate mortgage securities which comprise the portfolio. Of course, there
can be no assurance that the Fund will be able to maintain minimal volatility of
principal or that it will achieve its investment objective. The Fund endeavors
to achieve its investment objective, however, by following the investment
policies described in the prospectus and this Combined Statement of Additional
Information.
TYPES OF INVESTMENTS
The Fund will invest at least 65% of the value of its total assets in adjustable
and floating rate mortgage securities which are issued or guaranteed as to
payment of principal and interest by the U.S. government, its agencies or
instrumentalities. These securities and other U.S. government or agency
obligations are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- Federal Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
- Student Loan Marketing Association; and
- Federal Home Loan Mortgage Corporation.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Privately issued mortgage-related securities generally represent an
ownership interest in federal agency mortgage pass-through securities,
such as those issued by Government National Mortgage Association. The
terms and characteristics of the mortgage instruments may vary among
pass-through mortgage loan pools.
The market for such mortgage-related securities has expanded considerably
since its inception. The size of the primary issuance market and the
active participation in the secondary market by securities dealers and
other investors make government-related pools highly liquid.
CAPS AND FLOORS
The value of mortgage-related securities in which the Fund invests may be
affected if interest rates rise or fall faster and farther than the
allowable caps on the underlying residential mortgage loans. For example,
consider a residential mortgage loan with a rate which adjusts annually,
an initial interest rate of 10%, a 2% per annum interest rate cap, and a
5% life of loan interest rate cap. If the index against which the
underlying interest rate on the residential mortgage loan is
compared--such as the one-year Treasury-- moves up by 3%, the residential
mortgage loan rate may not increase by more than 2% to 12% the first year.
As one of the underlying residential mortgages for the securities in which
the Fund invests, the
1
- --------------------------------------------------------------------------------
residential mortgage would depress the value of the securities and,
therefore, the net asset value of the Fund. If the index against which the
interest rate on the underlying residential mortgage loan is compared
moves up no faster or farther than the cap on the underlying mortgage loan
allows, or if the index moves down as fast or faster than the floor on the
underlying mortgage loan allows, the mortgage would maintain or improve
the value of the securities in which the Fund invests and, therefore, the
net asset value of the Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that a defaulting seller files for bankruptcy or
becomes insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Board of Trustees (the
"Trustees").
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
are maintained until the transaction is settled.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreements.
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 August 31, 1994, and
1993, the portfolio turnover rates were 65%, and 36%, respectively.
2
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
STRIPPED MORTGAGE SECURITIES
The Fund will not invest in stripped mortgage securities, including securities
which represent a share of only the interest payments or only the principal
payments from underlying mortgage related securities.
BUYING ON MARGIN
The Fund will not purchase any securities on margin but may obtain such
short-term credits as may be necessary for the clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow money
and engage in reverse repurchase agreements in amounts up to one-third of the
value of its net assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or emergency
measure or to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio securities is deemed
to be inconvenient or disadvantageous. The Fund will not purchase any securities
while any such borrowings are outstanding.
During the period any reverse repurchase agreements are outstanding, but only to
the extent necessary to assure completion of the reverse repurchase agreements,
the Fund will restrict the purchase of portfolio instruments to money market
instruments maturing on or before the expiration date of the reverse repurchase
agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may pledge assets having a market value
not exceeding the lesser of the dollar amounts borrowed or 10% of the value of
total assets at the time of the borrowing.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements collateralized by
U.S. government securities) if, as a result, more than 5% of the value of its
total assets would be invested in securities of that issuer.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, although it may invest in the
securities of companies whose business involves the purchase or sale of real
estate or in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be deemed
to be an underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with its investment objective, policies, and
limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up to
one-third of the value of its total assets.
SELLING SHORT
The Fund will not sell securities short.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of its net assets in securities which are
illiquid, including repurchase agreements providing for settlement in more than
seven days after notice.
3
- --------------------------------------------------------------------------------
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies, except by
purchases in the open market involving only customary brokerage commissions and
as a result of which not more than 5% of the value of its total assets would be
invested in such securities, or except as part of a merger, consolidation, or
other acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of continuous
operations, including the operation of any predecessor. With respect to the
asset-backed securities, the Fund will treat the originator of the asset pool as
the company issuing the securities for purposes of determining compliance with
this limitation.
The above investment limitations cannot be changed without shareholder approval.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund did not engage in reverse repurchase agreements, purchase securities of
other investment companies, borrow money, or invest in illiquid securities in
excess of 5% of the value of its total assets during the last fiscal year and
has no present intent to do so in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
having capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items."
FEDERATED ARMS FUND MANAGEMENT
- --------------------------------------------------------------------------------
Officers and Trustees are listed with their addresses, principal occupations,
and present positions.
- --------------------------------------------------------------------------------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee of the Trust
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue,
Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Trustee of the Trust
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director, Trustee, or Managing General Partner of the Funds; formerly,
President, Naples Property Management, Inc.
4
- --------------------------------------------------------------------------------
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Trustee of the Trust
Director and Member of the Executive Committee, Michael Baker, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman and
Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
- --------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, MA
Trustee of the Trust
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
- --------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee of the Trust
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director, Trustee, or
Managing General Partner of the Funds.
- --------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+
5916 Penn Mall
Pittsburgh, PA
Trustee of the Trust
Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park Restaurants,
Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, or Managing
General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A.,
Western Region.
- --------------------------------------------------------------------------------
Peter E. Madden
225 Franklin Street
Boston, MA
Trustee of the Trust
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
5
- --------------------------------------------------------------------------------
Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee of the Trust
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee of the Trust
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
- --------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee of the Trust
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
- --------------------------------------------------------------------------------
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
President of the Trust
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp. and Federated Administrative Services.
- --------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President of the Trust
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services;
President or Vice President of the Funds; Director, Trustee, or Managing General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Trustee of the Trust.
6
- --------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President of the Trust
Executive Vice President and Trustee, Federated Investors; Director, Federated
Research Corp.; Chairman and Director, Federated Securities Corp.; President or
Vice President of some of the Funds; Director or Trustee of some of the Funds.
- --------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer of the Trust
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary of the Trust
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
- --------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
- --------------------------------------------------------------------------------
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated
Intermediate Government Trust; Federated Master Trust; Federated Municipal
Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond
7
- --------------------------------------------------------------------------------
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government
Money Market Trust; Liberty Term Trust, Inc. -- 1999; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; The Medalist
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of October 5, 1994, the following shareholders of record owned 5% or more of
the Institutional Service Shares of the Fund: Bellco First FCU, Greenwood
Village, Colorado, owned approximately 1,467,074 shares (6.0%); Eagle National
Bank, Miami, Florida, owned approximately 1,644,674 shares (6.7%); and Hilton
Hotels Corp., Beverly Hills, California, owned approximately 2,510,040 shares
(10.2%).
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund 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 Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal years ended August 31,
1994, 1993, and 1992, the Fund's Adviser earned $14,679,639, $12,533,139, and
$2,278,514, respectively, of which $3,459,009, $4,249,470, and $1,218,007,
respectively, were voluntarily waived 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.
8
- --------------------------------------------------------------------------------
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of shares of funds offered by Federated Securities Corp.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as the "Administrators".) For the fiscal
year ended August 31, 1994, the Administrators collectively earned $1,429,050,
none of which was waived. For the fiscal years ended August 31, 1993 and 1992,
Federated Administrative Services, Inc. earned $989,451 and $283,048,
respectively. Dr. Henry J. Gailliot, an officer of Federated Management, the
adviser to the Fund, holds approximately 20% of the outstanding common stock and
serves as a director of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. and
Federated Administrative Services.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Trustees.
The Adviser may select brokers 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 The 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 August 31, 1994, 1993, and 1992, the Fund paid no
brokerage commissions on brokerage transactions.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing Shares of
the Fund is explained in the respective prospectuses under "Investing in
Institutional Shares," or "Investing in Institutional Service Shares."
DISTRIBUTION PLAN (INSTITUTIONAL SERVICE SHARES ONLY) AND SHAREHOLDER SERVICES
PLAN
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish
9
- --------------------------------------------------------------------------------
and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
With respect to the Institutional Service Shares, by adopting the Distribution
Plan, the Board of Trustees expects that the Fund will be able to achieve a more
predictable flow of cash for investment purposes and to meet redemptions. This
will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ending August 31, 1994, payments in the amount of
$1,097,576 were made pursuant to the Distribution Plan (Insitutional Service
Shares only), of which $395,231 was voluntarily waived. In addition, for this
period, payments in the amount of $395,231 were made pursuant to the Shareholder
Services Plan (Institutional Service Shares).
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING VALUE OF SECURITIES
Market values of the Fund's portfolio securities are determined as follows:
- as provided by an independent pricing service;
- for short-term obligations, according to the mean between bid and asked
prices, as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost unless the Trustees determines this is not
fair value; or
- at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
- yield;
- quality;
- coupon rate;
- maturity;
- type of issue;
- trading characteristics; and
- other market data.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Institutional Shares," or "Redeeming
Institutional Service 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.
10
- --------------------------------------------------------------------------------
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
Investors may exchange U.S. government securities they already own for Shares,
or they may exchange a combination of U.S. government securities and cash for
Shares. An investor should forward the securities in negotiable form with an
authorized letter of transmittal to Federated Securities Corp. The Fund will
notify the investor of its acceptance and valuation of the securities within
five business days of their receipt by State Street Bank.
The Fund values securities in the same manner as the Fund values its assets. The
basis of the exchange will depend upon the net asset value of Shares on the day
the securities are valued. One Share will be issued for each equivalent amount
of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription, or other
rights attached to the securities become the property of the Fund, along with
the securities.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Shares,
a gain or loss may be realized by the investor.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
- derive less than 30% of its gross income from the sale of securities held
less than three months;
- invest in securities within certain statutory limits; and
- distribute to its shareholders at least 90% of its net income earned
during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction or exclusion available
to corporations. These dividends, and any short-term capital gains, are taxable
as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for both 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 offering price per share at the end of the period. The
number of shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the period
by any additional shares, assuming the monthly reinvestment of all dividends and
distributions.
The Fund's average annual total return for Institutional Shares for the one-year
and five-year periods ended August 31, 1994, and for the period from December 3,
1985 (effective date of the Trust's registration statement) to August 31, 1994,
were .99%, 6.90%, and 6.86%, respectively. The Fund's average annual total
return for Institutional Service Shares for the one year period ended August 31,
1994 and for the period from May 4, 1992 (date of initial public investment) to
August 31, 1994, were .74% and 3.19%, respectively.
11
- --------------------------------------------------------------------------------
YIELD
- --------------------------------------------------------------------------------
The yield for both classes 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 either class of shares over a thirty-day period by the
offering price per share by either class of shares on the last day of the
period. This value is then annualized using semi-annual compounding. This means
that the amount of income generated during the thirty-day period is assumed to
be generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by either
class because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of shares, performance will be reduced for those shareholders paying those
fees.
The Fund's yield for Institutional Shares for the thirty-day period ended August
31, 1994, was 4.12%. The Fund's yield for Institutional Service Shares was 3.87%
for the same period.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of shares depends upon such variables as:
- portfolio quality;
- average portfolio maturity;
- types of instruments in which the portfolio is invested;
- changes in interest rates and market value of portfolio securities;
- changes in the Fund's or either class of Share's expenses; and
- various other factors.
Either class of Share's performance fluctuates on a daily basis largely because
net earnings and offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- LEHMAN BROTHERS ADJUSTABLE RATE MORTGAGE FUNDS AVERAGE is comprised of all
agency guaranteed securities with coupons that periodically adjust over a
spread of a published index.
- LEHMAN BROTHERS 1-3 YEAR GOVERNMENT INDEX is comprised of all publicly
issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation. The index also includes
corporate debt guaranteed by the U.S. government. Only notes and bonds
with a minimum maturity of one year and maximum maturity of 2.9 years are
included.
- 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.
- MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertisements and other sales literature for both classes 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
either class of shares based on monthly reinvestment of dividends over a
specified period of time.
314082108
314082207
12 8100309 B (10/94)
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A);
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant +;
(i) Conformed copy of Amendment No. 1 to the
Declaration of Trust +;
(ii) Conformed copy of Amendment No. 2 to the
Declaration of Trust +;
(iii) Conformed copy of Amended and Restated
Declaration of Trust (14);
(2) Copy of By-Laws of the Registrant as Restated
and Amended +;
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of
Beneficial Interest of the Registrant (15);
(5) Conformed copy of Investment Advisory Contract
of the Registrant (9);
(6) Copy of Distributor's Contract of the Registrant
(14);
(i) Conformed copy of Exhibit A to Distributor's
Contract +;
(7) Not applicable;
(8) Conformed copy of Custodian Contract of the
Registrant +;
(9) (i) Conformed copy of Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement Agreement of the Registrant +;
(ii) Conformed copy of Administrative Services
Agreement +;
(iii) Conformed copy of Shareholder
Services Plan +;
(iv) Conformed copy of Shareholder Services
Agreement +;
(v) Copy of Shareholder Services Sub-Contract
+;
(10) Conformed copy of Opinion and Consent of
Counsel as to legality of shares being
registered +;
+ All exhibits are being filed electronically.
6. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 5 on Form N-1A filed February 18,
1987. (File Nos. 811-4539 and 2-98491)
9. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 8 on Form N-1A filed August 24, 1989.
(File Nos. 811-4539 and 2-98491)
14. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 14 on Form N-1A filed October 22, 1992.
(File Nos. 811-4539 and 2-98491)
15. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 15 on Form N-1A filed October 25, 1993.
(File Nos. 811-4539 and 2-98491)
(11) Conformed copy of Consent of Independent
Auditors +;
(12) Not applicable;
(13) Conformed copy of Initial Capital
Understanding +;
(14) Not applicable;
(15) (i)Copy of Rule 12b-1 Distribution Plan
of the Registrant (14);
(ii) Copy of Rule 12b-1 Agreement of
the Registrant (14);
(16) Copy of Schedule for Computation of Fund
Performance Data (8);
(17) Copy of Financial Data Schedule +;
(18) Conformed copy of Opinion and Consent of
Counsel as to Availability of Rule 485(b) +;
(19) Conformed copy of Power of Attorney +;
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of October 5, 1994
Shares of Beneficial Interest 2,511
(no par value)
Institutional Shares
Shares of Beneficial Interest 389
(no par value)
Institutional Service Shares
Item 27. Indemnification: (12.)
+ All exhibits are being filed electronically.
3. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 2 on Form N-1A filed November 27,
1985. (File Nos. 811-4539 and 2-98491)
8. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 7 on Form N-1A filed October 24, 1988.
(File Nos. 811-4539 2-98491)
10. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 9 on Form N-1A filed October 23, 1989.
(File Nos. 811-4539 and 2-98491)
12. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 11 on Form N-1A filed December 26,
1991. (File Nos. 811-4539 and 2-98491)
13. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 12 on Form N-1A filed February 24,
1992. (File Nos. 811-4539 and 2-98491)
14. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 14 on Form N-1A filed October 22, 1992.
(File Nos. 811-4539 and 2-98491)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment
adviser, see the section entitled "Trust Information -
Management of the Trust" in Part A. The affiliations with
the Registrant of three of the Trustees and one of the
Officers of the investment adviser are included in Part B
of this Registration Statement under "Federated ARMs Fund
Management." The remaining Trustee of the investment
adviser, his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson,
Partner, Wilson, Halbrook & Bayard, 107 W. Market Street,
Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are:
William D. Dawson, J. Thomas Madden, and Mark L. Mallon,
Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Gary J. Madich,
and J. Alan Minteer, Senior Vice Presidents; Randall A.
Bauer, Jonathan C. Conley, Deborah A. Cunningham, Mark E.
Durbiano, Kathleen M. Foody-Malus, Thomas M. Franks,
Edward C. Gonzales, Marian R. Marinack, John W. McGonigle,
Jeff A. Kozemchak, Gregory M. Melvin, Susan M. Nason, Mary
Jo Ochson, Robert J. Ostrowski, Charles A. Ritter, and
Christopher H. Wiles, Vice Presidents; Edward C. Gonzales,
Treasurer; and John W. McGonigle, Secretary. The business
address of each of the Officers of the investment adviser
is Federated Investors Tower, Pittsburgh, PA 15222-3779.
These individuals are also officers of a majority of the
investment advisers to the Funds listed in Part B of this
Registration Statement under "The Funds."
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of
the Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander
Hamilton Funds; American Leaders Fund, Inc.; Annuity
Management Series; Arrow Funds; Automated Cash Management
Trust; Automated Government Money Trust; BayFunds; The
Biltmore Funds; The Biltmore Municipal Funds; California
Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust;
Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-
Free Trust; Federated U.S. Government Bond Fund; First
Priority Funds; First Union Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fountain Square Funds; Fund for U.S.
Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Independence One Mutual
Funds; Insight Institutional Series, Inc.; Insurance
Management Series; Intermediate Municipal Trust;
International Series Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Utility Fund, Inc.; Liquid Cash
Trust; Managed Series Trust; Funds; Marshall Funds, Inc.;
Money Market Management, Inc.; The Medalist Money Market
Obligations Trust; Money Market Trust; The Monitor Funds;
Municipal Securities Income Trust; New York Municipal Cash
Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; Portage Funds; RIMCO Monument Funds; The Shawmut
Funds; Short-Term Municipal Trust; SouthTrust Vulcan
Funds; Star Funds; The Starburst Funds; The Starburst
Funds II; Stock and Bond Fund, Inc.; Sunburst Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; Tower
Mutual Funds; Trademark Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust
for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Vision Fiduciary Funds, Inc.; Vision
Group of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment
company: Liberty Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With
Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President
and
Federated Investors Tower President, and Treasurer, Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President
and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:
Federated ARMs Fund Federated Investors Tower
Pittsburgh, Pennsylvania
15222-3779
Federated Services Company Federated Investors
Tower
("Transfer Agent, Dividend Pittsburgh, Pennsylvania
Disbursing Agent and Portfolio 15222-3779
Recordkeeper")
Federated Administrative Services Federated Investors
Tower
("Administrator") Pittsburgh, Pennsylvania
15222-3779
Federated Management Federated Investors
Tower
("Advisor") Pittsburgh, Pennsylvania
15222-3779
State Street Bank and Trust Company P.O. Box 8604
("Custodian") Boston, Massachusetts
02266-8604
Item 31. Management Services: Not applicable
Item 32. Undertakings: Registrant hereby undertakes to comply
with the provisions of Section 16(c) of the 1940 Act with
respect to the removal of Directors and the calling of
special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to
whom a prospectus is delivered, a copy of the Registrant's
latest annual report to shareholders, upon request and
without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940, the Registrant,
FEDERATED ARMs FUND, has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 25th day of
October, 1994.
FEDERATED ARMs FUND
BY: /s/Robert C. Rosselot
Robert C. Rosselot Assistant Secretary
Attorney in Fact for John F. Donahue
October 25, 1994
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to its Registration Statement has been signed
below by the following person in the capacity and on the date
indicated:
NAME TITLE DATE
By: /s/Robert C. Rosselot
Robert C. Rosselot Attorney In Fact October 25,
1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-
K
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights" and "Independent Auditors" and to the
use of our reports dated October 6, 1994, in Post-Effective
Amendment Number 17 to the Registration Statement (Form N-1A
No. 2-98491) and the related Prospectuses of FEDERATED ARMs
FUND dated October 31, 1994.
/s/ ERNST & YOUNG
Pittsburgh, Pennsylvania
October 24, 1994
Exhibit 18 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTONPITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.__________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
October 21, 1994
Federated ARMs Fund
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to Federated ARMs Fund ("Trust") we have reviewed
Post-effective Amendment No. 17 to the Trust's Registration
Statement to be filed with the Securities and Exchange Commission
under the Securities Act of 1933 (File No. 2-98491). The subject
Post-effective Amendment will be filed pursuant to Paragraph (b)
of Rule 485 and become effective pursuant to said Rule on October
31, 1994.
Our review also included an examination of other relevant
portions of the amended 1933 Act Registration Statement of the
Trust and such other documents and records deemed appropriate.
On the basis of this review we are of the opinion that Post-
effective Amendment No. 17 does not contain disclosures which
would render it ineligible to become effective pursuant to
Paragraph (b) of Rule 485.
We hereby consent to the filing of this representation
letter as a part of the Trust's Registration Statement filed with
the Securities and Exchange Commission under the Securities Act
of 1933 and as part of any application or registration statement
filed under the Securities Laws of the States of the United
States.
Very truly yours,
Houston, Houston & Donnelly
By: /s/ Thomas J. Donnelly
TJD:heh
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby
constitutes and appoints the Secretary and Assistant
Secretary of Federated ARMs Fund and the Assistant General
Counsel of Federated Investors, and each of them, their true
and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names,
place and stead, in any and all capacities, to sign any and
all documents to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, the
Securities Exchange Act of 1934 and the Investment Company
Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR;
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to
all intents and purposes as each of them might or could do
in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or
his substitute or substitutes, may lawfully do or cause to
be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ John F. Donahue Chairman
and Trustee December 10, 1991
John F. Donahue (Chief Executive Officer)
/s/ Glen R. Johnson________ President
December 10, 1991
Glen R. Johnson
/s/ E. C. Gonzales Vice
President and Treasurer December 10,
1991
Edward C. Gonzales (Principal Financial and
Accounting Officer)
/s/ William J. Copeland Trustee
December 10, 1991
William J. Copeland
/s/ James E. Dowd Trustee December 10,
1991
James E. Dowd
/s/ Lawrence D. Ellis, M.D. Trustee
December 10, 1991
Lawrence D. Ellis, M.D.
/s/ Edward L. Flaherty. Trustee
December 10, 1991
Edward L. Flaherty
/s/ Gregor F. Meyer Trustee
December 10, 1991
Gregor F. Meyer
/s/ Wesley W. Posvar Trustee
December 10, 1991
Wesley W. Posvar
/s/ Marjorie P. Smuts Trustee
December 10, 1991
Marjorie P. Smuts
/s/ Peter E. Madden Trustee
December 10, 1991
Peter E. Madden
/s/ John T. Conroy Trustee December 10,
1991
John T. Conroy
Sworn to and subscribed before me this 10th day of December,
1991.
_/s/ Elaine T.
Polens_____________________________________________
Notary Public
Notarial Seal
Elaine T. Polens, Notary Public
Pittsburgh, Allegheny County
My Commission Expires March 28, 1994
Member, Pennsylvania Association of Notaries
1
Exhibit 1 under Form N-1A
Exhibit 3(a) under Item 601/Reg. S-K
CHOICE U.S. GOVERNMENT SECURITIES FUND
DECLARATION OF TRUST
Dated May 24, 1985
DECLARATION OF TRUST made May 24, 1985 by John F.
Donahue, William J. Copeland, James E. Dowd, Edward L.
Flaherty, Jr., J. Joseph Maloney, Jr., Gregor F. Meyer,
Wesley W. Posvar and Marjorie P. Smuts.
WHEREAS the Trustees desire to establish a trust fund
for the investment and reinvestment of funds contributed
thereto;
NOW THEREFORE, The Trustees declare that all money and
property contributed to the trust fund hereunder shall be
held and managed under this Declaration of Trust IN TRUST as
herein set forth below.
ARTICLE I
NAMES AND DEFINITIONS
Section 1. Name. This Trust shall be known as the
"Choice U.S. Government Securities Fund".
Section 2. Definitions. Wherever used herein, unless
otherwise required by the context or specifically provided:
(a) The terms "Affiliated Person," "Assignment,"
"Commission," "Interested Person," "Majority
Shareholder Vote" (the 67% or 50% requirement of the
third sentence of Section 2(a)(42) of the 1940 Act,
whichever may be applicable) and "Principal
Underwriter" shall have the meanings given them in the
Investment Company act of 1940, as amended from time to
time;
(b) The "Trust" refers to Choice U.S. Government
Securities Fund;
(c) "Accumulated Net Income" means the accumulated
net income of the Trust determined in the manner
provided or authorized in Article X, Section 3;
(d) "Shareholder" means a record owner of Shares
of the Trust;
(e) The "Trustees" refer to the individual
Trustees in their capacity as Trustees hereunder of the
Trust and their successor or successors for the time
being in office as such Trustees;
(f) "Shares" means the equal proportionate units
of interest into which the beneficial interest in the
Trust shall be divided from time to time and includes
fractions of Shares as well as whole Shares; and
(g) The "1940 Act" refers to the Investment
Company Act of 1940, as amended from time to time.
ARTICLE II
PURPOSE OF TRUST
The purpose of this Trust is to provide investors a
continuous source of managed investments primarily in
securities.
ARTICLE III
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The
beneficial interest in the Trust shall at all times be
divided into transferable Shares, without par value, each of
which shall represent an equal proportionate interest in the
Trust with each other Share outstanding, none having
priority or preference over another. The number of Shares
which may be issued is unlimited. The Trustees may from
time to time divide or combine the outstanding Shares into a
greater or lesser number without thereby changing the
proportionate beneficial interest in the Trust.
Contributions to the Trust may be accepted for, and Shares
shall be redeemed as, whole Shares and/or fractions.
Section 2. Ownership of Shares. The ownership of
Shares shall be recorded in the books of the Trust or a
transfer agent. The Trustees may make such rules as they
consider appropriate for the transfer of shares and similar
matters. The record books of the Trust or any transfer
agent, as the case may be, shall be conclusive as to who are
the holders of Shares and as to the number of Shares held
from time to time by each.
Section 3. Investment in the Trust. The Trustees
shall accept investments in the Trust from such persons and
on such terms as they may from time to time authorize.
After the date of the initial contribution of capital (which
shall occur prior to the initial public offering of Shares
of the Trust), the number of Shares to represent the initial
contribution shall be considered as outstanding and the
amount received by the Trustees on account of the
contribution shall be treated as an asset of the Trust.
Subsequent to such initial contribution of capital, Shares
(including Shares which may have been redeemed or
repurchased by the Trust) may be issued or sold at a price
which will net the Trust, before paying any taxes in
connection with such issue or sale, not less than the net
asset value (as defined in Article X, Section 4) thereof;
provided, however, that the Trustees may in their discretion
impose a sales charge upon investments in the Trust.
Section 4. No Pre-emptive Rights. Shareholders shall
have no pre-emptive or other right to subscribe to any
additional Shares or other securities issued by the Trust or
the Trustees.
ARTICLE IV
THE TRUSTEES
Section 1. Management of the Trust. The business and
affairs of the Trust shall be managed by the Trustees, and
they shall have all powers necessary and desirable to carry
out that responsibility. The Trustees who shall serve until
the election of Trustees at the 1985 Meeting of Shareholders
shall be John F. Donahue, William J. Copeland, James E.
Dowd, Edward L. Flaherty, Jr., J. Joseph Maloney, Jr.,
Gregor F. Meyer, Wesley W. Posvar and Marjorie P. Smuts.
Section 2. Election of Trustees at 1985 Meeting of
Shareholders. In the year 1985, on a date fixed by the
Trustees, which shall be subsequent to the initial public
offering of Shares of the Trust, the Shareholders shall
elect Trustees. The number of Trustees shall be determined
by the Trustees pursuant to Article IV, Section 6.
Section 3. Term of Office of Trustees. The Trustees
shall hold office during the lifetime of this Trust, and
until its termination as hereinafter provided; except (a)
that any Trustee may resign his trust by written instrument
signed by him and delivered or upon such later date as is
specified therein; (b); that any Trustee may be removed at
any time by written instrument signed by at least two-thirds
of the number of Trustees prior to such removal, specifying
the date when such removal shall become effective; (c) that
any Trustee who requests in writing to be retired or who has
become mentally or physically incapacitated may be retired
by written instrument signed by a majority of the other
Trustees, specifying the date of his retirement; and (d) a
Trustee may be removed at any special meeting of
Shareholders of the Trust by a vote of two-thirds of the
outstanding Shares.
Section 4. Termination of Service and Appointment of
Trustees. In case of the death, resignation, retirement,
removal or mental or physical incapacity of any of the
Trustees, or in case a vacancy shall, by reason of an
increase in number, or for any other reason, exist, the
remaining Trustees shall fill such vacancy by appointing
such other person as they in their discretion shall see fit.
Such appointment shall be effected by the signing of a
written instrument by a majority of the Trustees in office.
Within three months of such appointment, the Trustees shall
cause notice of such appointment to be mailed to each
Shareholder at his address as recorded on the books of the
Trust. An appointment of a Trustee may be made by the
Trustees then in office and notice thereof mailed to
Shareholders as aforesaid in anticipation of a vacancy to
occur by reason of retirement, resignation or increase in
number of Trustees effective at a later date, provided that
said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase
in number of Trustees. As soon as any Trustee so appointed
shall have accepted this Trust, the trust estate shall vest
in the new Trustee or Trustees, together with the continuing
Trustees, without any further act or conveyance, and he
shall be deemed a Trustee hereunder. Any appointment
authorized by this Section 4 is subject to the provisions of
Section 16(a) of the 1940 Act.
Section 5. Temporary Absence of Trustee. Any Trustee
may, by power of attorney, delegate his power for a period
not exceeding six months at any one time to any other
Trustee or Trustees, provided that in no case shall less
than two of the Trustees personally exercise the other power
hereunder except as herein otherwise expressly provided.
Section 6. Number of Trustees. The Number of
Trustees, not less than three (3) nor more than twenty (20)
serving hereunder at any time shall be determined by the
Trustees themselves.
Whenever a vacancy in the Board of Trustees shall
occur, until such vacancy is filled or while any Trustee is
physically or mentally incapacitated, the other Trustees
shall have all the powers hereunder and the certificate
signed by a majority of the other Trustees of such vacancy,
absence or incapacity, shall be conclusive, provided,
however, that no vacancy which reduces the number of
Trustees below three (3) shall remain unfilled for a period
longer than six calendar months.
Section 7. Effect of Death, Resignation, etc. of a
Trustee. The death, resignation, retirement, removal, or
mental or physical incapacity of the Trustees, or any one of
them, shall not operate to annul the Trust or to revoke any
existing agency created pursuant to the terms of this
Declaration of Trust.
Section 8. Ownership of the Trust. The assets of the
Trust shall be held separate and apart from any assets now
or hereafter held in any capacity other than as Trustee
hereunder by the Trustees or any successor Trustee. All of
the assets of the Trust shall at all times be considered as
vested in the Trustees. No Shareholder shall be deemed to
have a severable ownership in any individual asset of the
Trust or any right or partition or possession thereof, but
each Shareholder shall have a proportionate undivided
beneficial interest in the Trust.
ARTICLE V
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances
shall act as principals, and are and shall be free from the
control of the Shareholders. The Trustees shall have full
power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may
consider necessary or appropriate in connection with the
management of the Trust. The Trustees shall not be bound or
limited by present or future laws or customs in regard to
trust investments, but shall have full authority and power
to make any and all investments which they, in their
uncontrolled discretion, shall deem proper to accomplish the
purpose of this Trust. Without limiting the foregoing, the
Trustees shall have the following specific powers and
authority, subject to any applicable limitation in this
Declaration of Trust or in the By-Laws of the Trust.
(a) To buy, and invest funds in their hands in,
securities including, but not limited to, common stocks,
preferred stocks, bonds, debentures, warrants and rights to
purchase securities, certificates of beneficial interest,
money market instruments, notes or other evidences or
indebtedness issued by any corporation, trust or
association, domestic or foreign, or issued or guaranteed by
the United States of America or any agency or
instrumentality thereof, by the government of any foreign
country, by any State of the United States, or by any
political subdivision or agency or instrumentality of any
State or foreign country, or in "when-issued" or "delayed-
delivery" contracts for any such securities, or in any
repurchase agreement (agreements under which the seller
agrees at the time of sale to repurchase the security at an
agreed time and price), or retain Trust assets in cash, and
from time to time change the investments of the assets of
the Trust;
(b) To adopt By-Laws not inconsistent with the
Declaration of Trust providing for the conduct of the
business of the Trust and to amend and repeal them to the
extent that they do not reserve that right to the
Shareholders;
(c) To elect and remove such officers and appoint and
terminate such agents as they consider appropriate;
(d) To appoint or otherwise engage a bank or trust
company as custodian of any assets of the Trust subject to
any conditions set forth in this Declaration of Trust or in
the By-Laws;
(e) To appoint or otherwise engage transfer agents,
dividend disbursing agents, Shareholder servicing agents,
investment advisers, sub-investment advisers, principal
underwriters, administrative service agents, and such other
agents as the Trustees may from time to time appoint or
otherwise engage;
(f) To provide for the distribution of interests of the
Trust either through a principal underwriter in the manner
hereinafter provided for or by the Trust itself, or both;
(g) To set record dates in the manner hereinafter
provided for;
(h) To delegate such authority as they consider
desirable to a committee or committees composed of Trustees,
including without limitation, an Executive Committee, or to
any officers of the Trust and to any agent, custodian or
underwriter;
(i) To sell or exchange any or all of the assets of the
Trust, subject to the provisions of Article XII, Section
4(b) hereof;
(j) To vote or give assent, or exercise any rights of
ownership, with respect to stock or other securities or
property; and to execute and deliver powers of attorney to
such person or persons as the Trustees shall deem proper,
granting to such person or persons such power and discretion
with relation to securities or property as the Trustees
shall deem proper;
(k) To exercise powers and rights of subscription or
otherwise which in any manner arise out of ownership of
securities;
(l) To hold any security or property in a form not
indicating any trust, whether in bearer, unregistered or
other negotiable form; or either in its own name or in the
name of a custodian or a nominee or nominees, subject in
either case to proper safeguards according to the usual
practice of Massachusetts trust companies or investment
companies;
(m) To consent to or participate in any plan for the
reorganization, consolidation or merger of any corporation
or concern, any security of which is held in the Trust; to
consent to any contract, lease, mortgage, purchase, or sale
of property by such corporation or concern, and to paycalls
or subscriptions with respect to any security held in the
Trust;
(n) To engage in and to prosecute, compound,
compromise, abandon, or adjust, by arbitration, or
otherwise, any actions, suits, proceedings, disputes,
claims, demands, and things relating to the Trust, and out
of the assets of the Trust to pay, or to satisfy, any debts,
claims or expenses incurred in connection therewith,
including those of litigation, upon any evidence that the
Trustees may deem sufficient (such powers shall include
without limitation any actions, suits, proceedings,
disputes, claims, demands and things relating to the Trust
wherein any of the Trustees may be named individually and
the subject matter of which arises by reason of business for
or on behalf of the Trust);
(o) To make distributions of income and of capital
gains to Shareholders in the manner hereinafter provided
for;
(p) To borrow money but only as a temporary measure for
extraordinary or emergency purposes and then (a) only in
amounts not in excess of 5% of the value of its total assets
or (b) in any amount up to one-third of the value of its
total assets, including the amount borrowed, in order to
meet redemption request without immediately selling any
portfolio securities. The Trustees shall not pledge,
mortgage or hypothecate the assets of the Trust, except in
connection with any borrowing described herein and in
amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of the Trust's total assets at
the time of such borrowing.
(q) From time to time to issue and sell the Shares of
the Trust either for cash or for property whenever and in
such amounts as the Trustee may deem desirable, but subject
to the limitation set forth in Section 3 of Article III.
(r) To purchase insurance of any kind, including,
without limitation, insurance on behalf of any person who is
or was a Trustee, Officer, employee or agent of the Trust,
or is or was serving at the request of the Trust as a
Trustee, Director, Officer, agent or employee of another
corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his
status as such.
No one dealing with the Trustees shall be under any
obligation to make any inquiry concerning the authority of
the Trustees, or to see to the application of any payments
made or property transferred to the Trustees or upon their
order.
Section 2. Principal Transactions. The Trustees shall
not on behalf of the Trust buy any securities (other than
Shares of the Trust) from or sell any securities (other than
Shares of the Trust) to, or lend any assets of the Trust to,
any Trustee or officer or employee of the Trust or any firm
of which any such Trustee or officer is a member acting as
principal unless permitted by the 1940 Act, but the Trust
may employ any such other party or any such person or firm
or company in which any such person is an interested person
in any capacity not prohibited by the 1940 Act.
Section 3. Trustees and Officers as Shareholders. Any
Trustee, officer or other agent of the Trust may acquire,
own and dispose of shares of the Trust to the same extent as
if he were not a Trustee, officer or agent; and the Trustees
may issue and sell or cause to be issued or sold Shares of
the Trust to and buy such Shares from any such person or any
firm or company in which he is an interested person subject
only to the general limitations herein contained as to the
sale and purchase of such Shares; and all subject to any
restrictions which may be contained in the By-Laws.
Section 4. Parties to Contract. The Trustees may
enter into any contract of the character described in
Section 1, 2, 3, or 4 of Article VII or in Article IX hereof
or any other capacity not prohibited by the 1940 Act with
any corporation, firm, trust or association, although one or
more of the shareholders, Trustees, officers, employees or
agents of the Trust or their affiliates may be an officer,
director, Trustee, shareholder or interested person of such
other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence
of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship
for any loss or expense to the Trust under or by reason of
said contract or accountable for any profit realized
directly or indirectly therefrom, in the absence of actual
fraud. The same person (including a firm, corporation,
trust or association) may be the other party to contracts
entered into pursuant to Sections 1, 2, 3 and 4 of Article
VII or Article IX or any other capacity deemed legal under
the 1940 Act, and any individual may be financially
interested or otherwise an interested person of persons who
are parties to any or all of the contracts mentioned in this
Section 4.
ARTICLE VI
TRUSTEES' EXPENSES AND COMPENSATION
Section 1. Trustee Reimbursement. The Trustees shall
be reimbursed from the Trust estate for all of their
expenses and disbursements, including, without limitation,
expenses or organizing the Trust and continuing its
existence; fees and expenses of Trustees and Officers of the
Trust; fees for investment advisory services, administrative
services and principal underwriting services provided for in
Article VII, Sections 1, 2 and 3; fees and expenses of
preparing and printing its Registration Statements under the
Securities Act of 1933 and the Investment Company Act of
1940 and any amendments thereto; expenses of registering and
qualifying the Trust and its shares under federal and state
laws and regulations; expenses of preparing, printing and
distributing prospectuses and any amendments thereof sent to
shareholders, underwriters, broker-dealers and to investors
who may be considering the purchase of shares; expenses of
registering, licensing or other authorization of the Trust
as a broker-dealer and of its Officers as agents and
salesmen under federal and state laws and regulations;
interest expense, taxes, fees and commissions of every kind;
expenses of issue (including cost of share certificates),
purchase, repurchase and redemption of shares, including
expenses attributable to a program of periodic issue;
charges and expenses of custodians, transfer agents,
dividend disbursing agents, shareholder servicing agents and
registrars; printing and mailing costs; auditing, accounting
and legal expenses; reports to shareholders and governmental
officers and commissions; expenses of meetings of
shareholders and proxy solicitations therefor; insurance
expenses; association membership dues and nonrecurring items
in administering the Trust, including expenses incurred in
connection with litigation, proceedings and claims and the
obligations of the Trust under Article XI hereof to
indemnify its Trustees, Officers, employees, shareholders
and agents, and any contract obligation to indemnify
principal underwriters under Section 3 of Article VII and
for the payment of such expenses, disbursements, losses and
liabilities, the Trustees shall have a lien on the Trust
estate prior to any rights or interests of the Shareholders
thereto. This section shall not preclude the Trust from
directly paying any of the aforementioned fees and expenses.
Section 2. Trustee Compensation. The Trustees shall
be entitled to compensation from the Trust for their
respective services as Trustees, to be determined from time
to time by vote of the Trustees, and the Trustees shall also
determine the compensation of all Officers, consultants and
agents whom they may elect or appoint. The Trust may pay
any Trustee or any corporation, firm, trust or association
of which a Trustee is an interested person for services
rendered to the Trust in any capacity not prohibited by the
1940 Act, and such payments shall not be deemed compensation
for services as a Trustee under the first sentence of this
Section 2 of Article VI.
ARTICLE VII
INVESTMENT ADVISER, ADMINISTRATIVE SERVICES,
PRINCIPAL UNDERWRITER AND TRANSFER AGENT
Section 1. Investment Adviser. Subject to a Majority
Shareholder Vote, the Trustees may in their discretion from
time to time enter into an investment advisory contract
whereby the other party to such contract shall undertake to
furnish the Trustees investment advisory services upon such
terms and conditions and for such compensation as the
Trustees may in their discretion determine. Subject to a
Majority Shareholder Vote, the investment adviser may enter
into a sub-investment advisory contract to receive
investment advice and/or statistical and factual information
from the sub-investment adviser upon such terms and
conditions and for such compensation as the Trustees may in
their discretion agree to. Notwithstanding any provisions
of this Declaration of Trust, the Trustees may authorize the
investment adviser or sub-investment adviser or any person
furnishing administrative personnel and services and set
forth in Article VII, Section 2 (subject to such general or
specific instructions as the Trustees may from time to time
adopt) to effect purchases, sales or exchanges of portfolio
securities of the Trust on behalf of the Trustees or may
authorize any officer or Trustee to effect such purchases,
sales, or exchanges pursuant to recommendations of the
investment adviser (and all without further action by the
Trustees). Any such purchases, sales and exchanges shall be
deemed to have been authorized by the Trustees. The
Trustees may also authorize the investment adviser to
determine what firms shall be employed to effect
transactions in securities for the account of the Trust and
to determine what firms shall participate in any such
transactions or shall share in commissions or fees charged
in connection with such transactions.
Section 2. Administrative Services. The Trustees may
in their discretion from time to time contract for
administrative personnel and services whereby the other
party shall agree to provide the Trustees administrative
personnel and services to operate the Trust on a daily
basis, on such terms and conditions as the Trustees may in
their discretion determine. Such services may be provided
by one or more entities.
Section 3. Principal Underwriter. The Trustees may in
their discretion from time to time enter into an exclusive
or nonexclusive contract or contracts providing for the sale
of the Shares of the Trust to net the Trust not less than
the amount provided in Article III, Section 3 hereof,
whereby the Trust may either agree to sell the Shares to the
other party to the contract or appoint such other party its
sales agent for such shares. In either case, the contract
shall be on such terms and conditions (including
indemnification of principal underwriters allowable under
applicable law and regulation) as the Trustees may in their
discretion determine not inconsistent with the provisions of
this Article VII; and such contract may also provide for the
repurchase or sale of Shares of the Trust by such other
party as principal or as agent of the Trust and may provide
that the other party may maintain a market for shares of the
Trust.
Section 4. Transfer Agent. The Trustees may in their
discretion from time to time enter into transfer agency and
shareholder services contracts whereby the other party shall
undertake to furnish the Trustees transfer agency and
shareholder services. The contracts shall be on such terms
and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this
Declaration of Trust or of the By-Laws. Such services may
be provided by one or more entities.
Section 5. Provisions and Amendments. Any contract
entered into pursuant so Sections 1 or 3 of this Article VII
shall be consistent with and subject to the requirements of
Section 15 of the 1940 Act (including any amendments thereof
or other applicable Act of Congress hereafter enacted) with
respect to its continuance in effect, its termination and
the method of authorization and approval of such contract or
renewal thereof.
ARTILCE VIII
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have
power to vote (i) for the election of Trustees as provided
in Article IV, Section 2; (ii) for the removal of Trustees
as provided in Article IV, Section 3(d); (iii) with respect
to any investment adviser or sub-investment adviser as
provided in Article VII, Section 1; (iv) with respect to the
amendment of this Declaration of Trust as provided in
Article XII, Section 7; (v) to the same extent as the
shareholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should be
brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders and (vi) with
respect to such additional matters relating to the Trust as
may be required by law, by this Declaration of Trust, or the
By-Laws of the Trust or any regulation of the Trust with the
Commission or any State, or as the Trustees may consider
desirable. Each whole Share shall be entitled to one vote
as to any matter on which is entitled to vote, and each
fractional Share shall be entitled to approportionate
fractional vote. There shall be no cumulative voting in the
election of Trustees. Shares may be voted in person or by
proxy. Until Shares are issued, the Trustees may exercise
all rights of Shareholders and may take any action required
or permitted by law, this Declaration of Trust or any By-
Laws of the Trust to be taken by Shareholders.
Section 2. Meetings. A Shareholders meeting shall be
held as specified in Section 2 of Article IV at the
principal office of the Trust or such other place as the
Trustees may designate. Special meetings of the
Shareholders may be called by the Trustees or the Chief
Executive Officer of the Trust and shall be called by the
Trustees upon the written request of Shareholders owning at
least one-tenth of the outstanding Shares entitled to vote.
Shareholders shall be entitled to at least fifteen days'
notice of any meeting.
Section 2. Quorum and Required Vote. Except as
otherwise provided by law, to constitute a quorum for the
transaction of any business at any meeting of Shareholders
there must be present, in person or by proxy, holders of one-
fourth of the total number of Shares of the Trust then
outstanding and entitled to vote at such meeting. If a
quorum, as above defined, shall not be present for the
purpose of any vote that may properly come before the
meeting, the Shareholders present in person or by proxy and
entitled to vote at such meeting on such matter holding a
majority of the Shares present entitled to vote on such
matter may by vote adjourn the meeting from time to time to
be held at the same place without further notice than by
announcement to be given at the meeting until a quorum, as
above defined, entitled to vote on such matter shall be
present, whereupon any such matter may be voted upon at the
meeting as though held when originally convened. Subject of
any applicable requirement of law or of this Declaration of
Trust or the By-Laws, a plurality of the votes cast shall
elect a Trustee and all other matters shall be decided by a
majority of the votes cast entitled to vote thereon.
Section 4. Additional Provisions. The By-Laws may
include further provisions for Shareholders' votes and
meetings and related matters.
ARTICLE IX
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall
appoint or otherwise engage a bank or trust company having
an aggregate capital, surplus and undivided profits (as
shown in its last published report) of at least two million
dollars ($2,000,000) as custodian with authority as its
agent, but subject to such restrictions, limitations and
other requirements, if any, as may be contained in the By-
Laws of the Trust:
(1) To receive and hold the securities owned by
the Trust and deliver the same upon written order;
(2) To receive and receipt for any moneys due to
the Trust and deposit the same in its own banking
department or elsewhere as the Trustees may direct; and
(3) To disburse such funds upon orders or
vouchers;
(4) To keep the books and accounts of the Trust
and furnish clerical and accounting services;
(5) To compute, if authorized to do so by the
Trustees, the Accumulated Net Income of the Trust and
the net asset value of the Shares in accordance with
the provisions hereof;
all upon such basis of compensation as may be agreed upon
between the Trustees and the custodian. If so directed by a
Majority Shareholder Vote, the custodian shall deliver and
pay over all property of the Trust held by it as specified
in such vote.
The Trustees may also authorize the custodian to employ
one or more sub-custodians from time to time to perform such
of the acts and services of the custodian and upon such
terms and conditions, as may be agreed upon between the
custodian and such sub-custodian and approved by the
Trustees, provided that in every case such sub-custodian
shall be a bank or trust company organized under the laws of
the United States or one of the states thereof and having an
aggregate capital, surplus and undivided profits (as shown
in its last published report) of at least two million
dollars ($2,000,000).
Section 2. Central Certificate System. Subject to
such rules, regulations and orders as the Commission may
adopt, the Trustees may direct the custodian to deposit all
or any part of the securities owned by the Trust in a system
for the central handling of securities established by a
national securities exchange or a national securities
association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may
be permitted by the Commission or other in accordance with
the 1940 Act as from time to time amended, pursuant to which
system all securities of any particular class or series of
any issuer deposited within the system are treated as
fungible and may be transferred or pledged by bookkeeping
entry without physical delivery of such securities, provided
that all such deposits shall be subject to withdrawal only
upon the order of the custodian at the direction of the
Trustees.
ARTICLE X
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions.
(a) The Trustees may from time to time declare and pay
dividends, and the amount of such dividends and the payment
of them shall be wholly in the discretion of the Trustees.
(b) The Trustees may, on each day Accumulated Net
Income of the Trust (as defined in Section 3 of this Article
X) is determined and is positive, declare such Accumulated
Net Income as a dividend to Shareholders of record at such
time as the Trustees shall designate, payable in additional
full and fractional Shares or in cash.
(c) The Trustees may distribute in respect of any
fiscal year as ordinary dividends and as capital gains
distributions, respectively, amounts sufficient to enable
the Trust as a regulated investment company to avoid any
liability for federal income taxes in respect of that year.
(d) The decision of the Trustees as to what, in
accordance with good accounting practice, is income and what
is principal shall be final, and except as specifically
provided herein the decision of the Trustees as to what
expenses and charges of the Trust shall be charged against
principal and what against the income shall be final. Any
income not distributed in any year may be permitted to
accumulate and as long as not distributed may be invested
from time to time in the same manner as the principal funds
of the Trust.
(e) The Trustees shall have power, to the fullest
extent permitted by the laws of Massachusetts, at any time,
or from time to time, to declare and cause to be paid
dividends, which dividends, at the election of the Trustees,
may be accrued, automatically reinvested in additional
Shares (or fractions thereof) of the Trust or paid in cash
or additional Shares, all upon such terms and conditions as
the Trustees may prescribed.
(f) Anything in this instrument to the contrary
notwithstanding, the Trustees may at any time declare and
distribute a dividend consisting of shares of the Trust.
Section 2. Redemptions and Repurchases
(a) In case any Shareholder of record of the Trust at
any time desires to dispose of Shares recorded in his name,
he may deposit a written request (or such other form of
request as the Trustees may from time to time authorize)
requesting that the Trust purchase his Shares, together with
such other instruments or authorizations to effect the
transfer as the Trustees may from time to time require, at
the office of the Custodian, and the Trust shall purchase
his said Shares, but only at the net asset value of such
Shares (as defined in Section 4 of this Article X)
determined by or on behalf of the Trustees next after said
deposit.
Payment for such Shares shall be made by the Trust to
the Shareholder of record within seven (7) days after the
date upon which the request (and, if required, such other
instruments or authorizations of transfer) is deposited,
subject to the right of the Trustees to postpone the date of
payment pursuant to Section 5 of this Article X. If the
redemption is postponed beyond the date on which it would
normally occur by reason of a declaration by the Trustees
suspending the right of redemption pursuant to Section 5 of
this Article X, the right of the Shareholder to have his
Shares purchased by the Trust shall be similarly suspended,
and he may withdraw his request (or such other instruments
or authorizations of transfer) from deposit if he so elects;
or, if he does not so elect, the purchase price shall be the
net asset value of his Shares, determined next after
termination of such suspension and payment therefor shall be
made within seven (7) days thereafter.
(b) The Trust may purchase Shares of the Trust by
agreement with the owner thereof (1) at a price not
exceeding the net asset value per Share determined next
after the purchase or contract of purchase is made or (2) at
a price not exceeding the net asset value per Shares
determined at some later time.
(c) Shares purchased by the Trust either pursuant to
paragraph (a) or paragraph(b) of this Section 2 shall be
deemed treasury Shares and may be resold by the Trust.
(d) The Trust may pay the redemption price in whole or
in part by a distribution in kind of securities from the
portfolio of the Trust, taking such securities at the same
value employed in determining net asset value, and selecting
the securities in such manner as the Trustees may deem fair
and equitable.
Section 3. Determination of Accumulated Net Income.
The Accumulated Net Income of the Trust shall be determined
by or on behalf of the Trustees at such time or times as the
Trustees shall in their discretion determine. Such
determination shall be made in accordance with generally
accepted accounting principles and practices and may include
realized and/or unrealized gains from the sale or other
disposition of securities or other property of the Trust.
The power and duty to determine Accumulated Net Income may
be delegated by the Trustees from time to time to one or
more of the Trustees or officers of the Trust, to the other
party to any contract entered into pursuant to Section 1 or
2 of Article VII, or to the custodian or to a transfer
agent.
Section 4. Net Asset Value of Shares. The net asset
value of each Share of the Trust outstanding shall be
determined at such time to times as may be determined by or
on behalf of the Trustees. The power and duty to determine
net asset value may be delegated by the Trustees from time
to time to one or more of the Trustees or Officers of the
Trust, to the other party to any contract entered into
pursuant to Section 1 or 2 of Article VII or to the
custodian or to a transfer agent.
The net asset value of each Share of the Trust as of
any particular time shall be the quotient (adjusted to the
nearer cent) obtained by dividing the value, as of such
time, of the net assets of the Trust (i.e., the value of the
assets of the Trust less its liabilities exclusive of
capital and surplus) by the total number of Shares
outstanding (exclusive of treasury Shares) at such time in
accordance with the requirements of the 1940 Act and
applicable provisions of the By-Laws of the Trust in
conformity with generally accepted accounting practices and
principles.
The Trustees may declare a suspension of the
determination of net asset value for the whole or any part
of any period in accordance with the Investment Company Act
of 1940 and the rules and regulations adopted thereunder.
Section 5. Suspension of the Right of Redemption. The
Trustees may declare a suspension of the right of redemption
or postpone the date of payment for the whole or any part of
any period in accordance with the Investment Company Act of
1940 and the rules and regulations adopted thereunder.
Section 6. Trust's Right to Redeem Shares. The Trust
shall have the right to cause the redemption of Shares in
any Shareholder's account for their then current net asset
value (which will be promptly paid to the Shareholder in
cash), if at any time the total investment in the account
does not have a minimum dollar value determined from time to
time by the Trustees in their sole discretion. Shares of
the Trust are redeemable at the option of the Trust if, in
the opinion of the Trustees, ownership of Trust Shares has
or may become concentrated to an extent which would cause
the Trust to be a personal holding company within the
meaning of the Federal Internal Revenue Code (and thereby
disqualified under Sub-chapter M of said Code); in such
circumstances the Trust may compel the redemption of Shares,
reject any order for the purchase of Shares or refuse to
give effect to the transfer of Shares.
ARTICLE XI
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Personal Liability and
Indemnification of Shareholders. The Trustees, officers,
employees or agents of the Trust shall have no power to bind
any Shareholder personally or to call upon any Shareholder
for the payment of any sum of money or assessment
whatsoever, other than such as the Shareholder may at any
time agree to pay by way of subscription to any Shares or
otherwise.
No Shareholder or former Shareholder of the Trust shall
be liable solely by reason of his being or having been a
Shareholder for any debt, claim, action, demand, suit,
proceeding, judgment, decree, liability or obligation of any
kind, against, or with respect to the Trust arising out of
any action taken or omitted for or on behalf of the Trust,
and the Trust shall be solely liable therefor and resort
shall be had solely to the Trust property for the payment or
performance thereof.
Each Shareholder or former Shareholder of the Trust (or
their heirs, executors, administrators or other legal
representatives or, in case of a corporate entity, its
corporate or general successor) shall be entitled to
indemnity and reimbursement of the Trust property to the
full extent of such liability and the costs of any
litigation or other proceedings in which such liability
shall have been determined, including, without limitation,
the fees and disbursements of counsel if, contrary to the
provisions hereof, such Shareholder or former Shareholder of
the Trust shall be held to personal liability.
The Trust shall, upon request by the Shareholder or
former Shareholder, assume the defense of any claim made
against any Shareholder for any act of obligation of the
Trust and satisfy any judgment thereon.
Section 2. Limitation of Personal Liability of
Trustees, Officers, Employees or Agents of the Trust. No
Trustee, Officer, employee or agent of the Trust shall have
the power to bind any other Trustee, officer, employee or
agent of the Trust personally. The Trustees, officers,
employees or agents of the Trust incurring any debts,
liabilities or obligations, or in taking or omitting any
other actions for or in connection with the Trust are, and
each shall be deemed to be, acting as Trustee, officer,
employee or agent of the Trust and not in his own individual
capacity.
Provided they have acted under the belief that their
actions are in the best interest of the Trust, the Trustee
and Officers shall not be responsible for or liable in any
event for neglect or wrongdoing by them or any officer,
agent, employee, investment adviser or principal underwriter
of the Trust or of any entity providing administrative
services for the Trust, but nothing herein contained shall
protect any Trustee or officer against any liability to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office.
Section 3. Express Exculpatory Clauses and
Instruments. The Trustees shall use every reasonable means
to assure that all persons having dealings with the Trust
shall be informed that the property of the Shareholders and
the Trustees, Officers, employees and agents of the Trust
shall not be subject to claims against or obligations of the
Trust to any extent whatsoever. The Trustees shall cause to
be inserted in any written agreement, undertaking or
obligation made or issued on behalf of the Trust (including
certificates for Shares of the Trust) an appropriate
reference to this Declaration, providing that neither the
Shareholders, the Trustees, the officers, the employees nor
any agent of the Trust shall be liable thereunder, and that
the other parties to such instrument shall look solely to
the Trust property for the payment of any claim thereunder
or for the performance thereof; but the omission of such
provisions from any such instrument shall not render any
Shareholder, Trustee, officer, employee or agent liable, nor
shall the Trustee, or any officer, agent or employee of the
Trust be liable to anyone for such omission. If,
notwithstanding this provision, any Shareholder, Trustee,
officer, employee or agent shall be held liable to any other
person by reason of the omission of such provision from any
such agreement, undertaking or obligation, the Shareholder,
Trustee, officer, employee or agent shall be entitled to
indemnity and reimbursement out of the Trust property, as
provided in this Article XI.
Section 4. Indemnification of Trustees, Officers,
Employees and Agents.
(a) Every person who is or has been a Trustee, officer,
employee or agent of the Trust and persons who serve at the
Trust's request as director, officer, employee or agent of
another corporation, partnership, joint venture, trust or
other enterprise shall be indemnified by the Trust to
fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in
connection with any debt, claim, action, demand, suit,
proceeding, judgment, decree, liability or obligation of any
kind in which he becomes involved as a party or otherwise by
virtue of his being or having been a Trustee, officer,
employee or agent of the Trust or of another corporation,
partnership, joint venture, trust or other enterprise at the
request of the Trust and against amounts paid or incurred by
him in the settlement thereof.
(b) The words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings
(civil, criminal, administrative, legislative, investigative
or other, including appeals), actual or threatened, and the
words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid
in settlement, fines, penalties and other liabilities.
(c) No indemnification shall be provided hereunder to a
Trustee, officer, employee or agent against any liability to
the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his
office.
(d) The rights of indemnification herein provided may
be insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights to
which any Trust, shall be severable, shall not affect any
other rights to which any Trustee, officer, employee or
agent may now or hereafter be entitled, shall continue as to
a person who has ceased to be such Trustee, officer,
employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(e) Expenses in connection with the preparation and
presentation of a defense to any claim, action suit or
proceeding of the character described in paragraph (a) of
this Section 4 may be paid by the Trust prior to final
disposition thereof upon receipt of any undertaking by or on
behalf of the Trustee, officer, employee or agent occurred
by a surety bond or other suitable insurance that such
amount will be paid over by him to the Trust if it is
ultimately determined that he is not entitled to
indemnification under this Section 4.
ARTICLE XII
MISCELLANEOUS
Section 1. Trust is not a Partnership. It is hereby
expressly declared that a trust and not a partnership is
created hereby.
Section 2. Trustee's Good Faith Action, Expert Advice,
No Bond or Surety. The exercise by the Trustees of their
powers and discretions hereunder in good faith and with
reasonable care under the circumstances then prevailing,
shall be binding upon everyone interested. Subject to the
provisions of Article XI, the Trustees shall not be liable
for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of
Trust, and subject to the provisions of Article XI, shall be
under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. The
Trustees shall not be required to give any bond as such, nor
any surety if a bond is required.
Section 3. Establishment of Record Dates. The
Trustees may close the Share transfer books of the Trust for
a period not exceeding sixty (60) days preceding the date of
any meeting of Shareholders, or the date for the payment of
any dividend or the making of any distribution to
Shareholders, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares
shall go into effect; or in lieu of closing the Share
transfer books as aforesaid, the Trustees may fix in advance
a date, not exceeding sixty (60) days preceding the date of
any meeting of Shareholders, or the date for the payment of
any dividend or the making of any distribution to
Shareholders, or the date for the allotment of rights, or
the date when any change or conversion or exchange of Shares
shall go into effect, or the last day on which the consent
or dissent of Shareholders may be effectively expressed for
any purpose, as a record date for the determination of the
Shareholders entitled to notice of, and, to vote at, any
such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend or distribution, or to
any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of
shares, or to exercise the right to give such consent or
dissent, and in such case such Shareholder and only such
Shareholder as shall be Shareholders of record on the date
so fixed shall be entitled to such notice of, and to vote
at, such meeting, or to receive payment of such dividend or
distribution, or to receive such allotment or rights; or to
exercise such rights, as the case may be, notwithstanding
any transfer of any Shares on the books of the Trust after
any such date fixed as aforesaid.
Section 4. Termination of Trust.
(a) This Trust shall continue without limitation of
time but subject to the provisions of paragraphs (b), (c)
and (d) of this Section 4.
(b) The Trustees, with the approval of the holders of
at least two-thirds of the outstanding Shares, may by
unanimous action sell and convey the assets of the Trust to
another trust or corporation organized under the laws of any
state of the United States, which is a diversified pen-end
management investment company as defined in the 1940 Act,
for an adequate consideration which may include the
assumption of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust and which
may include shares of beneficial interest or stock of such
trust or corporation. Upon making provision for the payment
of all such liabilities, by such assumption or otherwise,
the Trustees shall distribute the remaining proceeds ratably
among the holders of the Shares of the Trust then
outstanding.
(c) Subject to a Majority Shareholder Vote, the
Trustees may at any time sell and convert into money all the
assets of the Trust. Upon making provision for the payment
of all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust, the Trustees shall
distribute the remaining assets of the Trust ratably among
the holders of the outstanding Shares.
(d) Upon completion of the distribution of the
remaining proceeds of the remaining assets as provided in
paragraphs (b) and (c), the Trust shall terminate and the
Trustees shall be discharged of any and all fourth
liabilities and duties hereunder and the right, title and
interest of all parties shall be canceled and discharged.
Section 5. Offices of the Trust, Filing of Copies,
References, Headings. The Trust shall maintain a usual
place of business in Massachusetts, which, initially, shall
be 31 Milk Street, Boston, Massachusetts, and shall continue
to maintain an office at such address unless changed by the
Trustees to another location in Massachusetts. The Trust
may maintain other offices as the Trustees may from time to
time determine. The original or a copy of this instrument
and of each declaration of trust supplemental hereto shall
be kept at the office of the Trust where it may be inspected
by any Shareholder. A copy of this instrument and of each
supplemental declaration of trust shall be filed by the
Trustees with the Massachusetts Secretary of State and the
Boston City Clerk, as well as any other governmental office
where such filing may from time to time be required. Anyone
dealing with the Trust may rely on a certificate by an
officer of the Trust as to whether or not any such
supplemental declaration of trust has been made and as to
any matters in connection with the Trust hereunder, and with
the same effect as if it were the original, may rely on a
copy certified by an officer of the Trust to be a copy of
this instrument or of any such supplemental declaration of
trust. In this instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer
to this instrument as amended or affected by an such
supplemental declaration of trust. Headings are placed
herein for convenience of reference only and in case of any
conflict, the text of this instrument, rather than the
headings, shall control. This instrument may be executed in
any number of counterparts each of which shall be deemed an
original.
Section 6. Applicable Law. The Trust set forth in
this instrument is created under and is to be governed by
and construed and administered according to the laws of the
Commonwealth of Massachusetts. The Trust shall be of the
type commonly called a Massachusetts business trust, and
without limiting the provision hereof, the Trust may
exercise all powers which are ordinarily exercised by such a
trust.
Section 7. Amendments. Prior to the initial issuance
of Shares pursuant to the second sentence of Section 3 of
Article III, a majority of the Trustees then in office may
amend or otherwise supplement this instrument by making a
Declaration of Trust supplemental hereto, which thereafter
shall form a part hereof. Subsequent to such initial
issuance of Shares, if authorized by a majority of the
Trustees then in office and by a Majority Shareholder Vote,
or by any larger vote which may be required by applicable
law or this Declaration of Trust in any particular case, the
Trustees shall amend or otherwise supplemental hereto, which
thereafter shall form a part hereof. Any such supplemental
Declaration of Trust shall be signed by at least a majority
of the Trustees then in office. Copies of the supplemental
Declaration of Trust shall be filed as specified in Section
5 of this Article XII.
IN WITNESS WHEREOF, the undersigned have executed this
instrument the day and year first above written.
/s/ John F. Donahue /s/ J. Joseph Maloney,
Jr.
John F. Donahue J. Joseph Maloney, Jr.
/s/ William J. Copeland /s/ Gregor F. Meyer
William J. Copeland Gregor F. Meyer
/s/ James E. Dowd /s/ Wesley W. Posvar
James E. Dowd Wesley W. Posvar
/s/ Edward L. Flaherty, Jr. /s/ Marjorie P.
Smuts
Edward L. Flaherty, Jr. Marjorie P. Smuts
Exhibit 1(i) to Form N-1A
Exhibit 3(a) to Item 601/Reg.
S-K
FEDERATED U.S. GOVERNMENT FUND
(Formerly CHOICE U.S. GOVERNMENT SECURITIES FUND)
Amendment No. 1
to
DECLARATION OF TRUST
Dated May 24, 1985
THIS Amendment to the Declaration of Trust is made this
1st day of August, 1985, by John F. Donahue, William J.
Copeland, James E. Dowd, Edward L. Flaherty, Jr., J. Joseph
Maloney, Jr., Gregor F. Meyer, Wesley W. Posvar and Marjorie
P. Smuts.
WHEREAS, the Trustees executed a Declaration of Trust
among themselves on May 24, 1985, creating a Massachusetts
Business Trust for the investment and reinvestment of funds
contributed thereto; and
WHEREAS, pursuant to Section 7 of Article XII of the
Declaration of Trust, the Trustees desire to amend the
Declaration of Trust; and
NOW, THEREFORE, the Trustees hereby amend the
Declaration of Trust as follows:
1. By striking Section 1 of Article I from the
Declaration of Trust and substituting in its place the
following:
"Section 1. Name. This Trust shall be known as
the 'Federated U.S. Government Fund'."
2. By striking Section 2(b) of Article I from the
Declaration of Trust and substituting in its place the
following:
"Section 2. Definitions. Wherever used herein,
unless otherwise required by the context or
specifically provided:
* * * * *
"(b) The 'Trust' refers to Federated U.S. Government
Fund."
IN WITNESS WHEREOF, the undersigned, being all of the
Trustees, have executed this Amendment to the Declaration of
Trust the day and year first above written.
/s/ John F. Donahue /s/ J. Joseph Maloney,
Jr.
John F. Donahue J. Joseph Maloney, Jr.
/s/ William J. Copeland /s/ Gregor F. Meyer
William J. Copeland Gregor F. Meyer
/s/ James E. Dowd /s/ Wesley W. Posvar
James E. Dowd Wesley W. Posvar
/s/ Edward L. Flaherty, Jr. /s/ Marjorie P.
Smuts
Edward L. Flaherty, Jr. Marjorie P. Smuts
Exhibit 1(ii) to Form N-1A
Exhibit 3(a) to Item 601/Reg. S-K
FEDERATED U.S. GOVERNMENT FUND
Amendment No. 2
to
DECLARATION OF TRUST
Dated May 24, 1985
THIS Amendment to the Declaration of Trust is made this
21st day of October, 1985, by John F. Donahue, William J.
Copeland, James E. Dowd, Edward L. Flaherty, Jr., J. Joseph
Maloney, Jr., Gregor F. Meyer, Wesley W. Posvar and Marjorie
P. Smuts.
WHEREAS, the Trustees executed a Declaration of Trust
among themselves on May 24, 1985, creating a Massachusetts
Business Trust for the investment and reinvestment of funds
contributed thereto; and
WHEREAS, pursuant to Section 7 of Article XII of the
Declaration of Trust, the Trustees desire to amend the
Declaration of Trust; and
NOW, THEREFORE, the Trustees hereby amend the
Declaration of Trust as follows:
1. By striking Section 4 of Article XI from the
Declaration of Trust and substituting in its place the
following:
"Section 4. Indemnification of Trustees,
Officers, Employees and Agents.
(a) Every person who is or has been a Trustee,
Officer, employee or agent of the Trust and
persons who serve at the Trust's request as
director, officer, employee or agent of another
corporation, partnership, joint venture, trust or
other enterprise shall be indemnified by the Trust
to the fullest extent permitted by law against
liability and against all expenses reasonably
incurred or paid by him in connection with any
debt, claim, action, demand, suit, proceeding,
judgment, decree, liability or obligation of any
kind in which he becomes involved as a party or
otherwise by virtue of his being or having been a
Trustee, officer, employee or agent of the Trust
or of another corporation, partnership, joint
venture, trust or other enterprise at the request
of the Trust and against amounts paid or incurred
by him in the settlement thereof.
(b) The words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions,
suits or proceedings (civil, criminal,
administrative, legislative, investigative or
other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(c) No indemnification shall be provided
hereunder to a Trustee, officer, employee or agent
against any liability to the Trust or its
Shareholders by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of
the duties involved in the conduct of his office.
(d) The rights of indemnification herein provided
may be insured against by policies maintained by
the Trust, shall be several, shall not affect any
other rights to which any Trustee, officer,
employee or agent may now or hereafter be
entitled, shall continue as to a person who has
ceased to be such Trustee, officer, employee, or
agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(e) In the absence of a final decision on the
merits by a court or other body before which such
proceeding was brought, an indemnification payment
will not be made, except as provided in paragraph
(f) of this Section 4, unless in the absence of
such a decision, a reasonable determination based
upon a factual review has been made (i) by a
majority vote of a quorum of non-party trustees
who are not interested persons of the Trust, or
(ii) by independent legal counsel in a written
opinion that the indemnitee was not liable for an
act of willful misfeasance, bad faith, gross
negligence, or reckless disregard of duties.
(f) The Trust further undertakes that advancement
of expenses incurred in the defense of a
proceeding (upon undertaking for repayment unless
it is ultimately determined that indemnification
is appropriate) against an officer, trustee or
controlling person of the Trust will not be made
absent the fulfillment of at least one of the
following conditions: (i) the indemnitee provides
security for his undertaking, (ii) the Trust is
insured against losses arising by reason of any
lawful advances of (iii) a majority of a quorum of
disinterested non-party trustees or independent
legal counsel in a written opinion makes a factual
determination that there is a reason to believe
the indemnitee will be entitled to
indemnification."
IN WITNESS WHEREOF, the undersigned, being all of the
Trustees, have executed this Amendment to the Declaration of
Trust the day and year first above written.
/s/ John F. Donahue /s/ J. Joseph Maloney,
Jr.
John F. Donahue J. Joseph Maloney, Jr.
/s/ William J. Copeland /s/ Gregor F. Meyer
William J. Copeland Gregor F. Meyer
/s/ James E. Dowd /s/ Wesley W. Posvar
James E. Dowd Wesley W. Posvar
/s/ Edward L. Flaherty, Jr. /s/ Marjorie P.
Smuts
Edward L. Flaherty, Jr. Marjorie P. Smuts
The Trustees of
Federated U.S. Government Fund Page 2 November 22, 1985
Exhibit 10 under Form N-1A
Exhibit 5 under Item 601/Reg.
S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTONPITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR.__________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS
HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
November 22, 1985
The Trustees of
Federated U.S. Government Fund
421 Seventh Avenue
Pittsburgh, PA 15219
Gentlemen:
Federated U.S. Government Fund ("Trust") proposes to
offer and sell Shares of Beneficial Interest ("Shares") in
the manner and on the terms set forth in its Registration
Statement filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
As counsel we have participated in the organization of
the Trust, its registration under the Investment Company Act
of 1940 and the preparation and filing of its Registration
Statement under the Securities Act of 1933. We have
examined and are familiar with the provisions of the written
Declaration of Trust dated May 24, 1985, ("Declaration of
Trust"), the Bylaws of the Trust and such other documents
and records deemed relevant. We have also reviewed
questions of law and consulted with counsel thereon as
deemed necessary or appropriate by us for the purposes of
this opinion.
Based upon the foregoing, it is our opinion that:
1. The Trust is duly organized and validly existing
pursuant to the Declaration of Trust.
2. The Shares which are currently being registered by
the amended Registration Statement referred to above may be
legally and validly issued from time to time in accordance
with the Declaration of Trust upon receipt of consideration
sufficient to comply with the provisions of Article III,
Section 3, of the Declaration of Trust and subject to
compliance with the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and applicable
state laws regulating the sale of securities. Such Shares,
when so issued, will be fully and non-assessable.
We consent to your filing this opinion as an exhibit to
the amended Registration Statement referred to above and to
any application or registration statement filed under the
securities laws of any of the States of the United States.
We further consent to the reference to our firm under the
caption "Legal Counsel" in the prospectus filed as a part of
such amended Registration Statement, applications and
registration statements.
Very truly yours,
HOUSTON, HOUSTON &
DONNELLY
By: /s/ William McC.
Houston
TJD/heh
Exhibit 13 under Form N-1A
Exhibit 99 under Item 601/Reg. S-
K
THE STANDARD FIRE INSURANCE COMPANY
Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
(412) 288-1900
November 18, 1985
Federated U.S. Government Fund
Federated Investors
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Gentlemen:
The Standard Fire Insurance Company agrees to purchase 10,000
shares of Federated U.S. Government Fund at the cost of $10.00
each. These shares are purchased for investment purposes, and
The Standard Fire Insurance Company has no present intention
of redeeming these shares.
Very truly yours,
/s/John A. Staley, IV
John A. Staley, IV
Vice President
sdm
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> Institutional Service Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 1,508,390,687
<INVESTMENTS-AT-VALUE> 1,500,126,241
<RECEIVABLES> 23,370,536
<ASSETS-OTHER> 129,432
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,523,626,209
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,922,184
<TOTAL-LIABILITIES> 28,922,184
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,573,572,622
<SHARES-COMMON-STOCK> 26,564,711
<SHARES-COMMON-PRIOR> 50,053,320
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (70,604,151)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,264,446)
<NET-ASSETS> 255,891,431
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 123,828,567
<OTHER-INCOME> 0
<EXPENSES-NET> 14,554,181
<NET-INVESTMENT-INCOME> 109,274,386
<REALIZED-GAINS-CURRENT> (55,879,989)
<APPREC-INCREASE-CURRENT> (24,269,803)
<NET-CHANGE-FROM-OPS> 29,124,594
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,689,300
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 48,183,748
<NUMBER-OF-SHARES-REDEEMED> 72,696,731
<SHARES-REINVESTED> 1,024,374
<NET-CHANGE-IN-ASSETS> (1,594,451,848)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14,724,162)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,679,639
<INTEREST-EXPENSE> 89,107
<GROSS-EXPENSE> 18,408,421
<AVERAGE-NET-ASSETS> 2,007,576,136
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .420
<PER-SHARE-GAIN-APPREC> (.350)
<PER-SHARE-DIVIDEND> .420
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.63
<EXPENSE-RATIO> 80
<AVG-DEBT-OUTSTANDING> 5,845,033
<AVG-DEBT-PER-SHARE> .013
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> Institutional Shares
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-END> AUG-31-1994
<INVESTMENTS-AT-COST> 1,508,390,687
<INVESTMENTS-AT-VALUE> 1,500,126,241
<RECEIVABLES> 23,370,536
<ASSETS-OTHER> 129,432
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,523,626,209
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,922,184
<TOTAL-LIABILITIES> 28,922,184
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,573,572,622
<SHARES-COMMON-STOCK> 128,609,253
<SHARES-COMMON-PRIOR> 267,585,932
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (70,604,151)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,264,446)
<NET-ASSETS> 1,238,812,594
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 123,828,567
<OTHER-INCOME> 0
<EXPENSES-NET> 14,554,181
<NET-INVESTMENT-INCOME> 109,274,386
<REALIZED-GAINS-CURRENT> (55,879,989)
<APPREC-INCREASE-CURRENT> (24,269,803)
<NET-CHANGE-FROM-OPS> 29,124,594
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 90,585,086
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 141,739,864
<NUMBER-OF-SHARES-REDEEMED> 283,203,693
<SHARES-REINVESTED> 2,487,150
<NET-CHANGE-IN-ASSETS> (1,594,451,848)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (14,724,162)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 14,679,639
<INTEREST-EXPENSE> 89,107
<GROSS-EXPENSE> 18,408,421
<AVERAGE-NET-ASSETS> 2,007,576,136
<PER-SHARE-NAV-BEGIN> 9.98
<PER-SHARE-NII> .450
<PER-SHARE-GAIN-APPREC> (.350)
<PER-SHARE-DIVIDEND> .450
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.63
<EXPENSE-RATIO> 55
<AVG-DEBT-OUTSTANDING> 5,845,033
<AVG-DEBT-PER-SHARE> .013
</TABLE>
Exhibit 8 Under Form N-1A
Exhibit 10 Under Item 601/Reg. S-K
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It1
2. Duties of the Custodian With Respect to Property
of the Funds Held by the Custodian 2
2.1 Holding Securities
2
2.2 Delivery of Securities
2
2.3 Registration of Securities
5
2.4 Bank Accounts
6
2.5 Payments for Shares
7
2.6 Availability of Federal Funds
7
2.7 Collection of Income
7
2.8 Payment of Fund Moneys
8
2.9 Liability for Payment in Advance of
Receipt of Securities Purchased. 9
2.10 Payments for Repurchases or Redemptions
of Shares of a Fund 9
2.11 Appointment of Agents
10
2.12 Deposit of Fund Assets in Securities System
10
2.13 Segregated Account
12
2.14 Joint Repurchase Agreements
13
2.15 Ownership Certificates for Tax Purposes
13
2.16 Proxies
13
2.17Communications Relating to Fund Portfolio Securit
ies13
2.18 Proper Instructions
14
2.19 Actions Permitted Without Express Authority
14
2.20 Evidence of Authority
15
2.21Notice to Trust by Custodian Regarding Cash Movem
ent. 15
3. Duties of Custodian With Respect to the Books of
Account and
Calculation of Net Asset Value and Net Income 15
4. Records 16
5. Opinion of Funds' Independent Public
Accountants/Auditors 16
6. Reports to Trust by Independent Public
Accountants/Auditors 17
7. Compensation of Custodian 17
8. Responsibility of Custodian 17
9. Effective Period, Termination and Amendment 19
10. Successor Custodian 20
11. Interpretive and Additional Provisions 21
12. Massachusetts Law to Apply 22
13. Notices 22
14. Counterparts 22
15. Limitations of Liability 22
CUSTODIAN CONTRACT
This Contract between those INVESTMENT COMPANIES listed on
Exhibit 1, as it may be amended from time to time, (the
"Trust"), which may be Massachusetts business trusts or
Maryland corporations or have such other form of
organization as may be indicated, on behalf of the
portfolios (hereinafter collectively called the "Funds" and
individually referred to as a "Fund") of the Trust, having
its principal place of business at Federated Investors
Tower, Pittsburgh, Pennsylvania, 15222-3779, and STATE
STREET BANK AND TRUST COMPANY, a Massachusetts trust
company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter
called the "Custodian", and FEDERATED SERVICES COMPANY, a
Delaware Business trust company, having its principal place
of business at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, hereinafter called ("Company").
WITNESSETH: That in consideration of the mutual covenants a
nd agreements hereinafter contained, the parties hereto
agree as follows:
1. Employment of Custodian and Property to be Held by It
The Trust hereby employs the Custodian as the custodian
of the assets of each of the Funds of the Trust. Except
as otherwise expressly provided herein, the securities
and other assets of each of the Funds shall be segregated
from the assets of each of the other Funds and from all
other persons and entities. The Trust will deliver to
the Custodian all securities and cash owned by the Funds
and all payments of income, payments of principal or
capital distributions received by them with respect to
all securities owned by the Funds from time to time, and
the cash consideration received by them for shares
("Shares") of beneficial interest/capital stock of the
Funds as may be issued or sold from time to time. The
Custodian shall not be responsible for any property of
the Funds held or received by the Funds and not delivered
to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning
of Section 2.18), the Custodian shall from time to time
employ one or more sub-custodians upon the terms
specified in the Proper Instructions, provided that the
Custodian shall have no more or less responsibility or
liability to the Trust or any of the Funds on account of
any actions or omissions of any sub-custodian so employed
than any such sub-custodian has to the Custodian.
2.Duties of the Custodian With Respect to Property of the Fu
nds Held by the Custodian
2.1Holding Securities. The Custodian shall hold and phys
ically segregate for the account of each Fund all non-
cash property, including all securities owned by each
Fund, other than securities which are maintained
pursuant to Section 2.12 in a clearing agency which
acts as a securities depository or in a book-entry
system authorized by the U.S. Department of the
Treasury, collectively referred to herein as
"Securities System", or securities which are subject
to a joint repurchase agreement with affiliated funds
pursuant to Section 2.14. The Custodian shall
maintain records of all receipts, deliveries and
locations of such securities, together with a current
inventory thereof, and shall conduct periodic
physical inspections of certificates representing
stocks, bonds and other securities held by it under
this Contract in such manner as the Custodian shall
determine from time to time to be advisable in order
to verify the accuracy of such inventory. With
respect to securities held by any agent appointed
pursuant to Section 2.11 hereof, and with respect to
securities held by any sub-custodian appointed
pursuant to Section 1 hereof, the Custodian may rely
upon certificates from such agent as to the holdings
of such agent and from such sub-custodian as to the
holdings of such sub-custodian, it being understood
that such reliance in no way relieves the Custodian
of its responsibilities under this Contract. The
Custodian will promptly report to the Trust the
results of such inspections, indicating any shortages
or discrepancies uncovered thereby, and take
appropriate action to remedy any such shortages or
discrepancies.
2.2Delivery of Securities. The Custodian shall release a
nd deliver securities owned by a Fund held by the
Custodian or in a Securities System account of the
Custodian only upon receipt of Proper Instructions,
which may be continuing instructions when deemed
appropriate by the parties, and only in the following
cases:
(1)Upon sale of such securities for the account of a
Fund and receipt of payment therefor;
(2)Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Trust;
(3)In the case of a sale effected through a Securitie
s System, in accordance with the provisions of
Section 2.12 hereof;
(4)To the depository agent in connection with tender
or other similar offers for portfolio securities
of a Fund, in accordance with the provisions of
Section 2.17 hereof;
(5)To the issuer thereof or its agent when such secur
ities are called, redeemed, retired or otherwise
become payable; provided that, in any such case,
the cash or other consideration is to be
delivered to the Custodian;
(6)To the issuer thereof, or its agent, for transfer
into the name of a Fund or into the name of any
nominee or nominees of the Custodian or into the
name or nominee name of any agent appointed
pursuant to Section 2.11 or into the name or
nominee name of any sub-custodian appointed
pursuant to Section 1; or for exchange for a
different number of bonds, certificates or other
evidence representing the same aggregate face
amount or number of units; provided that, in any
such case, the new securities are to be delivered
to the Custodian;
(7)Upon the sale of such securities for the account o
f a Fund, to the broker or its clearing agent,
against a receipt, for examination in accordance
with "street delivery custom"; provided that in
any such case, the Custodian shall have no
responsibility or liability for any loss arising
from the delivery of such securities prior to
receiving payment for such securities except as
may arise from the Custodian's own failure to act
in accordance with the standard of reasonable
care or any higher standard of care imposed upon
the Custodian by any applicable law or regulation
if such above-stated standard of reasonable care
were not part of this Contract;
(8)For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities
of the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new
securities and cash, if any, are to be delivered
to the Custodian;
(9)In the case of warrants, rights or similar securit
ies, the surrender thereof in the exercise of
such warrants, rights or similar securities or
the surrender of interim receipts or temporary
securities for definitive securities; provided
that, in any such case, the new securities and
cash, if any, are to be delivered to the
Custodian;
(10)For delivery in connection with any loans of port
folio securities of a Fund, but only against
receipt of adequate collateral in the form of (a)
cash, in an amount specified by the Trust, (b)
certificated securities of a description
specified by the Trust, registered in the name of
the Fund or in the name of a nominee of the
Custodian referred to in Section 2.3 hereof or in
proper form for transfer, or (c) securities of a
description specified by the Trust, transferred
through a Securities System in accordance with
Section 2.12 hereof;
(11)For delivery as security in connection with any b
orrowings requiring a pledge of assets by a Fund,
but only against receipt of amounts borrowed,
except that in cases where additional collateral
is required to secure a borrowing already made,
further securities may be released for the
purpose;
(12)For delivery in accordance with the provisions of
any agreement among the Trust or a Fund, the
Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") and a member of The National
Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with the rules of The
Options Clearing Corporation and of any
registered national securities exchange, or of
any similar organization or organizations,
regarding escrow or other arrangements in
connection with transactions for a Fund;
(13)For delivery in accordance with the provisions of
any agreement among the Trust or a Fund, the
Custodian, and a Futures Commission Merchant
registered under the Commodity Exchange Act,
relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any
Contract Market, or any similar organization or
organizations, regarding account deposits in
connection with transaction for a Fund;
(14)Upon receipt of instructions from the transfer ag
ent ("Transfer Agent") for a Fund, for delivery
to such Transfer Agent or to the holders of
shares in connection with distributions in kind,
in satisfaction of requests by holders of Shares
for repurchase or redemption; and
(15)For any other proper corporate purpose, but only
upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of
the Executive Committee of the Trust on behalf of
a Fund signed by an officer of the Trust and
certified by its Secretary or an Assistant
Secretary, specifying the securities to be
delivered, setting forth the purpose for which
such delivery is to be made, declaring such
purpose to be a proper corporate purpose, and
naming the person or persons to whom delivery of
such securities shall be made.
2.3 Registration of Securities. Securities held by the C
ustodian (other than bearer securities) shall be
registered in the name of a particular Fund or in the
name of any nominee of the Fund or of any nominee of
the Custodian which nominee shall be assigned
exclusively to the Fund, unless the Trust has
authorized in writing the appointment of a nominee to
be used in common with other registered investment
companies affiliated with the Fund, or in the name or
nominee name of any agent appointed pursuant to
Section 2.11 or in the name or nominee name of any
sub-custodian appointed pursuant to Section 1. All
securities accepted by the Custodian on behalf of a
Fund under the terms of this Contract shall be in
"street name" or other good delivery form.
2.4 Bank Accounts. The Custodian shall open and maintain
a separate bank account or accounts in the name of
each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received
by it from or for the account of each Fund, other
than cash maintained in a joint repurchase account
with other affiliated funds pursuant to Section 2.14
of this Contract or by a particular Fund in a bank
account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940,
as amended, (the "1940 Act"). Funds held by the
Custodian for a Fund may be deposited by it to its
credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies
as it may in its discretion deem necessary or
desirable; provided, however, that every such bank or
trust company shall be qualified to act as a
custodian under the 1940 Act and that each such bank
or trust company and the funds to be deposited with
each such bank or trust company shall be approved by
vote of a majority of the Board of Trustees/Directors
("Board") of the Trust. Such funds shall be
deposited by the Custodian in its capacity as
Custodian for the Fund and shall be withdrawable by
the Custodian only in that capacity. If requested by
the Trust, the Custodian shall furnish the Trust, not
later than twenty (20) days after the last business
day of each month, an internal reconciliation of the
closing balance as of that day in all accounts
described in this section to the balance shown on the
daily cash report for that day rendered to the Trust.
2.5Payments for Shares. The Custodian shall make such ar
rangements with the Transfer Agent of each Fund, as
will enable the Custodian to receive the cash
consideration due to each Fund and will deposit into
each Fund's account such payments as are received
from the Transfer Agent. The Custodian will provide
timely notification to the Trust and the Transfer
Agent of any receipt by it of payments for Shares of
the respective Fund.
2.6Availability of Federal Funds. Upon mutual agreement
between the Trust and the Custodian, the Custodian
shall make federal funds available to the Funds as of
specified times agreed upon from time to time by the
Trust and the Custodian in the amount of checks,
clearing house funds, and other non-federal funds
received in payment for Shares of the Funds which are
deposited into the Funds' accounts.
2.7 Collection of Income.
(1)The Custodian shall collect on a timely basis all
income and other payments with respect to
registered securities held hereunder to which
each Fund shall be entitled either by law or
pursuant to custom in the securities business,
and shall collect on a timely basis all income
and other payments with respect to bearer
securities if, on the date of payment by the
issuer, such securities are held by the Custodian
or its agent thereof and shall credit such
income, as collected, to each Fund's custodian
account. Without limiting the generality of the
foregoing, the Custodian shall detach and present
for payment all coupons and other income items
requiring presentation as and when they become
due and shall collect interest when due on
securities held hereunder. The collection of
income due the Funds on securities loaned
pursuant to the provisions of Section 2.2 (10)
shall be the responsibility of the Trust. The
Custodian will have no duty or responsibility in
connection therewith, other than to provide the
Trust with such information or data as may be
necessary to assist the Trust in arranging for
the timely delivery to the Custodian of the
income to which each Fund is properly entitled.
(2)The Custodian shall promptly notify the Trust when
ever income due on securities is not collected in
due course and will provide the Trust with
monthly reports of the status of past due income
unless the parties otherwise agree.
2.8Payment of Fund Moneys. Upon receipt of Proper Instru
ctions, which may be continuing instructions when
deemed appropriate by the parties, the Custodian
shall pay out moneys of each Fund in the following
cases only:
(1)Upon the purchase of securities, futures contracts
or options on futures contracts for the account
of a Fund but only (a) against the delivery of
such securities, or evidence of title to futures
contracts, to the Custodian (or any bank, banking
firm or trust company doing business in the
United States or abroad which is qualified under
the 1940 Act to act as a custodian and has been
designated by the Custodian as its agent for this
purpose) registered in the name of the Fund or in
the name of a nominee of the Custodian referred
to in Section 2.3 hereof or in proper form for
transfer, (b) in the case of a purchase effected
through a Securities System, in accordance with
the conditions set forth in Section 2.12 hereof
or (c) in the case of repurchase agreements
entered into between the Trust and any other
party, (i) against delivery of the securities
either in certificate form or through an entry
crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase for
the account of the Fund of securities owned by
the Custodian along with written evidence of the
agreement by the Custodian to repurchase such
securities from the Fund;
(2)In connection with conversion, exchange or surrend
er of securities owned by a Fund as set forth in
Section 2.2 hereof;
(3)For the redemption or repurchase of Shares of a Fu
nd issued by the Trust as set forth in Section
2.10 hereof;
(4)For the payment of any expense or liability incurr
ed by a Fund, including but not limited to the
following payments for the account of the Fund:
interest; taxes; management, accounting, transfer
agent and legal fees; and operating expenses of
the Fund, whether or not such expenses are to be
in whole or part capitalized or treated as
deferred expenses;
(5)For the payment of any dividends on Shares of a Fu
nd declared pursuant to the governing documents
of the Trust;
(6)For payment of the amount of dividends received in
respect of securities sold short;
(7)For any other proper purpose, but only upon receip
t of, in addition to Proper Instructions, a
certified copy of a resolution of the Executive
Committee of the Trust on behalf of a Fund
signed by an officer of the Trust and certified
by its Secretary or an Assistant Secretary,
specifying the amount of such payment, setting
forth the purpose for which such payment is to be
made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom
such payment is to be made.
2.9Liability for Payment in Advance of Receipt of Securit
ies Purchased. In any and every case where payment
for purchase of securities for the account of a Fund
is made by the Custodian in advance of receipt of the
securities purchased, in the absence of specific
written instructions from the Trust to so pay in
advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.10Payments for Repurchases or Redemptions of Shares of
a Fund. From such funds as may be available for the
purpose of repurchasing or redeeming Shares of a
Fund, but subject to the limitations of the
Declaration of Trust/Articles of Incorporation and
any applicable votes of the Board of the Trust
pursuant thereto, the Custodian shall, upon receipt
of instructions from the Transfer Agent, make funds
available for payment to holders of shares of such
Fund who have delivered to the Transfer Agent a
request for redemption or repurchase of their shares
including without limitation through bank drafts,
automated clearinghouse facilities, or by other
means. In connection with the redemption or
repurchase of Shares of the Funds, the Custodian is
authorized upon receipt of instructions from the
Transfer Agent to wire funds to or through a
commercial bank designated by the redeeming
shareholders.
2.11Appointment of Agents. The Custodian may at any time
or times in its discretion appoint (and may at any
time remove) any other bank or trust company which is
itself qualified under the 1940 Act and any
applicable state law or regulation, to act as a
custodian, as its agent to carry out such of the
provisions of this Section 2 as the Custodian may
from time to time direct; provided, however, that the
appointment of any agent shall not relieve the
Custodian of its responsibilities or liabilities
hereunder.
2.12Deposit of Fund Assets in Securities System. The Cus
todian may deposit and/or maintain securities owned
by the Funds in a clearing agency registered with the
Securities and Exchange Commission ("SEC") under
Section 17A of the Exchange Act, which acts as a
securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to
herein as "Securities System" in accordance with
applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following
provisions:
(1)The Custodian may keep securities of each Fund in a Securities System
provided that such securities are represented in an account
("Account")
of the Custodian in the Securities System which shall not include any
assets of the Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
(2)The records of the Custodian with respect to securities of the Funds
which are maintained in a Securities System shall identify by book-
entry those securities belonging to each Fund;
(3)The Custodian shall pay for securities purchased for the account
of each
Fund upon (i) receipt of advice from the Securities System that such
securities have been transferred to the Account, and (ii) the
making of
an entry on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall transfer
securities sold for the account of a Fund upon (i) receipt of advice
from the Securities System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the Securities
System
of transfers of securities for the account of a Fund shall
identify the
Fund, be maintained for the Fund by the Custodian and be provided to
the Trust at its request. Upon request, the Custodian shall furnish
the Trust confirmation of each transfer to or from the account of a
Fund in the form of a written advice or notice and shall furnish
to the
Trust copies of daily transaction sheets reflecting each day's
transactions in the Securities System for the account of a Fund.
(4)The Custodian shall provide the Trust with any report obtained by the
Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities
deposited
in the Securities System;
(5)The Custodian shall have received the initial certificate, required by
Section 9 hereof;
(6)Anything to the contrary in this Contract notwithstanding, the
Custodian
shall be liable to the Trust for any loss or damage to a Fund
resulting
from use of the Securities System by reason of any negligence,
misfeasance or misconduct of the Custodian or any of its agents or of
any of its or their employees or from failure of the Custodian or any
such agent to enforce effectively such rights as it may have against
the Securities System; at the election of the Trust, it shall be
entitled to be subrogated to the rights of the Custodian with respect
to any claim against the Securities System or any other person which
the Custodian may have as a consequence of any such loss or damage if
and to the extent that a Fund has not been made whole for any
such loss or damage.
(7)The authorization contained in this Section 2.12 shall not relieve the
Custodian from using reasonable care and diligence in making use
of any Securities System.
2.13Segregated Account. The Custodian shall upon receipt
of Proper Instructions establish and maintain a
segregated account or accounts for and on behalf of
each Fund, into which account or accounts may be
transferred cash and/or securities, including
securities maintained in an account by the Custodian
pursuant to Section 2.12 hereof, (i) in accordance
with the provisions of any agreement among the Trust,
the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any
futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with
the rules of The Options Clearing Corporation and of
any registered national securities exchange (or the
Commodity Futures Trading Commission or any
registered contract market), or of any similar
organization or organizations, regarding escrow or
other arrangements in connection with transactions
for a Fund, (ii) for purpose of segregating cash or
government securities in connection with options
purchased, sold or written for a Fund or commodity
futures contracts or options thereon purchased or
sold for a Fund, (iii) for the purpose of compliance
by the Trust or a Fund with the procedures required
by any release or releases of the SEC relating to the
maintenance of segregated accounts by registered
investment companies and (iv) for other proper
corporate purposes, but only, in the case of clause
(iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the
Board or of the Executive Committee signed by an
officer of the Trust and certified by the Secretary
or an Assistant Secretary, setting forth the purpose
or purposes of such segregated account and declaring
such purposes to be proper corporate purposes.
2.14Joint Repurchase Agreements. Upon the receipt of Pro
per Instructions, the Custodian shall deposit and/or
maintain any assets of a Fund and any affiliated
funds which are subject to joint repurchase
transactions in an account established solely for
such transactions for the Fund and its affiliated
funds. For purposes of this Section 2.14,
"affiliated funds" shall include all investment
companies and their portfolios for which subsidiaries
or affiliates of Federated Investors serve as
investment advisers, distributors or administrators
in accordance with applicable exemptive orders from
the SEC. The requirements of segregation set forth
in Section 2.1 shall be deemed to be waived with
respect to such assets.
2.15Ownership Certificates for Tax Purposes. The Custodi
an shall execute ownership and other certificates and
affidavits for all federal and state tax purposes in
connection with receipt of income or other payments
with respect to securities of a Fund held by it and
in connection with transfers of securities.
2.16Proxies. The Custodian shall, with respect to the se
curities held hereunder, cause to be promptly
executed by the registered holder of such securities,
if the securities are registered otherwise than in
the name of a Fund or a nominee of a Fund, all
proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly
deliver to the Trust such proxies, all proxy
soliciting materials and all notices relating to such
securities.
2.17Communications Relating to Fund Portfolio Securities.
The Custodian shall transmit promptly to the Trust
all written information (including, without
limitation, pendency of calls and maturities of
securities and expirations of rights in connection
therewith and notices of exercise of call and put
options written by the Fund and the maturity of
futures contracts purchased or sold by the Fund)
received by the Custodian from issuers of the
securities being held for the Fund. With respect to
tender or exchange offers, the Custodian shall
transmit promptly to the Trust all written
information received by the Custodian from issuers of
the securities whose tender or exchange is sought and
from the party (or his agents) making the tender or
exchange offer. If the Trust desires to take action
with respect to any tender offer, exchange offer or
any other similar transaction, the Trust shall notify
the Custodian in writing at least three business days
prior to the date on which the Custodian is to take
such action. However, the Custodian shall
nevertheless exercise its best efforts to take such
action in the event that notification is received
three business days or less prior to the date on
which action is required.
2.18Proper Instructions. Proper Instructions as used thr
oughout this Section 2 means a writing signed or
initialed by one or more person or persons as the
Board shall have from time to time authorized. Each
such writing shall set forth the specific transaction
or type of transaction involved. Oral instructions
will be deemed to be Proper Instructions if (a) the
Custodian reasonably believes them to have been given
by a person previously authorized in Proper
Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust
promptly causes such oral instructions to be
confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the
authorization by the Board of the Trust accompanied
by a detailed description of procedures approved by
the Board, Proper Instructions may include
communications effected directly between electro-
mechanical or electronic devices provided that the
Board and the Custodian are satisfied that such
procedures afford adequate safeguards for a Fund's
assets.
2.19Actions Permitted Without Express Authority. The Cus
todian may in its discretion, without express
authority from the Trust:
(1)make payments to itself or others for minor expens
es of handling securities or other similar items
relating to its duties under this Contract,
provided that all such payments shall be
accounted for to the Trust in such form that it
may be allocated to the affected Fund;
(2)surrender securities in temporary form for securit
ies in definitive form;
(3)endorse for collection, in the name of a Fund, che
cks, drafts and other negotiable instruments; and
(4)in general, attend to all non-discretionary detail
s in connection with the sale, exchange,
substitution, purchase, transfer and other
dealings with the securities and property of each
Fund except as otherwise directed by the Trust.
2.20Evidence of Authority. The Custodian shall be protec
ted in acting upon any instructions, notice, request,
consent, certificate or other instrument or paper
reasonably believed by it to be genuine and to have
been properly executed on behalf of a Fund. The
Custodian may receive and accept a certified copy of
a vote of the Board of the Trust as conclusive
evidence (a) of the authority of any person to act in
accordance with such vote or (b) of any determination
of or any action by the Board pursuant to the
Declaration of Trust/Articles of Incorporation as
described in such vote, and such vote may be
considered as in full force and effect until receipt
by the Custodian of written notice to the contrary.
2.21Notice to Trust by Custodian Regarding Cash Movement.
The Custodian will provide timely notification to the
Trust of any receipt of cash, income or payments to
the Trust and the release of cash or payment by the
Trust.
3.Duties of Custodian With Respect to the Books of Account a
nd Calculation of Net Asset Value and Net Income.
The Custodian shall cooperate with and supply necessary info
rmation to the entity or entities appointed by the Board
of the Trust to keep the books of account of each Fund
and/or compute the net asset value per share of the
outstanding Shares of each Fund or, if directed in
writing to do so by the Trust, shall itself keep such
books of account and/or compute such net asset value per
share. If so directed, the Custodian shall also
calculate daily the net income of a Fund as described in
the Fund's currently effective prospectus and Statement
of Additional Information ("Prospectus") and shall advise
the Trust and the Transfer Agent daily of the total
amounts of such net income and, if instructed in writing
by an officer of the Trust to do so, shall advise the
Transfer Agent periodically of the division of such net
income among its various components. The calculations of
the net asset value per share and the daily income of a
Fund shall be made at the time or times described from
time to time in the Fund's currently effective
Prospectus.
4. Records.
The Custodian shall create and maintain all records
relating to its activities and obligations under this
Contract in such manner as will meet the obligations of
the Trust and the Funds under the 1940 Act, with
particular attention to Section 31 thereof and Rules 31a-
1 and 31a-2 thereunder, and specifically including
identified cost records used for tax purposes. All such
records shall be the property of the Trust and shall at
all times during the regular business hours of the
Custodian be open for inspection by duly authorized
officers, employees or agents of the Trust and employees
and agents of the SEC. In the event of termination of
this Contract, the Custodian will deliver all such
records to the Trust, to a successor Custodian, or to
such other person as the Trust may direct. The Custodian
shall supply daily to the Trust a tabulation of
securities owned by a Fund and held by the Custodian and
shall, when requested to do so by the Trust and for such
compensation as shall be agreed upon between the Trust
and the Custodian, include certificate numbers in such
tabulations.
5. Opinion of Funds' Independent Public
Accountants/Auditors.
The Custodian shall take all reasonable action, as the
Trust may from time to time request, to obtain from year
to year favorable opinions from each Fund's independent
public accountants/auditors with respect to its
activities hereunder in connection with the preparation
of the Fund's registration statement, periodic reports,
or any other reports to the SEC and with respect to any
other requirements of such Commission.
6. Reports to Trust by Independent Public
Accountants/Auditors.
The Custodian shall provide the Trust, at such times as
the Trust may reasonably require, with reports by
independent public accountants/auditors for each Fund on
the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts
and options on futures contracts, including securities
deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian for
the Fund under this Contract; such reports shall be of
sufficient scope and in sufficient detail, as may
reasonably be required by the Trust, to provide
reasonable assurance that any material inadequacies would
be disclosed by such examination and, if there are no
such inadequacies, the reports shall so state.
7. Compensation of Custodian.
The Custodian shall be entitled to reasonable
compensation for its services and expenses as Custodian,
as agreed upon from time to time between Company and the
Custodian.
8. Responsibility of Custodian.
The Custodian shall be held to a standard of reasonable
care in carrying out the provisions of this Contract;
provided, however, that the Custodian shall be held to
any higher standard of care which would be imposed upon
the Custodian by any applicable law or regulation if such
above stated standard of reasonable care was not part of
this Contract. The Custodian shall be entitled to rely
on and may act upon advice of counsel (who may be counsel
for the Trust) on all matters, and shall be without
liability for any action reasonably taken or omitted
pursuant to such advice, provided that such action is not
in violation of applicable federal or state laws or
regulations, and is in good faith and without negligence.
Subject to the limitations set forth in Section 15
hereof, the Custodian shall be kept indemnified by the
Trust but only from the assets of the Fund involved in
the issue at hand and be without liability for any action
taken or thing done by it in carrying out the terms and
provisions of this Contract in accordance with the above
standards.
In order that the indemnification provisions contained in
this Section 8 shall apply, however, it is understood
that if in any case the Trust may be asked to indemnify
or save the Custodian harmless, the Trust shall be fully
and promptly advised of all pertinent facts concerning
the situation in question, and it is further understood
that the Custodian will use all reasonable care to
identify and notify the Trust promptly concerning any
situation which presents or appears likely to present the
probability of such a claim for indemnification. The
Trust shall have the option to defend the Custodian
against any claim which may be the subject of this
indemnification, and in the event that the Trust so
elects it will so notify the Custodian and thereupon the
Trust shall take over complete defense of the claim, and
the Custodian shall in such situation initiate no further
legal or other expenses for which it shall seek
indemnification under this Section. The Custodian shall
in no case confess any claim or make any compromise in
any case in which the Trust will be asked to indemnify
the Custodian except with the Trust's prior written
consent.
Notwithstanding the foregoing, the responsibility of the
Custodian with respect to redemptions effected by check
shall be in accordance with a separate Agreement entered
into between the Custodian and the Trust.
If the Trust requires the Custodian to take any action
with respect to securities, which action involves the
payment of money or which action may, in the reasonable
opinion of the Custodian, result in the Custodian or its
nominee assigned to a Fund being liable for the payment
of money or incurring liability of some other form, the
Custodian may request the Trust, as a prerequisite to
requiring the Custodian to take such action, to provide
indemnity to the Custodian in an amount and form
satisfactory to the Custodian.
Subject to the limitations set forth in Section 15
hereof, the Trust agrees to indemnify and hold harmless
the Custodian and its nominee from and against all taxes,
charges, expenses, assessments, claims and liabilities
(including counsel fees) (referred to herein as
authorized charges) incurred or assessed against it or
its nominee in connection with the performance of this
Contract, except such as may arise from it or its
nominee's own failure to act in accordance with the
standard of reasonable care or any higher standard of
care which would be imposed upon the Custodian by any
applicable law or regulation if such above-stated
standard of reasonable care were not part of this
Contract. To secure any authorized charges and any
advances of cash or securities made by the Custodian to
or for the benefit of a Fund for any purpose which
results in the Fund incurring an overdraft at the end of
any business day or for extraordinary or emergency
purposes during any business day, the Trust hereby grants
to the Custodian a security interest in and pledges to
the Custodian securities held for the Fund by the
Custodian, in an amount not to exceed 10 percent of the
Fund's gross assets, the specific securities to be
designated in writing from time to time by the Trust or
the Fund's investment adviser. Should the Trust fail to
make such designation, or should it instruct the
Custodian to make advances exceeding the percentage
amount set forth above and should the Custodian do so,
the Trust hereby agrees that the Custodian shall have a
security interest in all securities or other property
purchased for a Fund with the advances by the Custodian,
which securities or property shall be deemed to be
pledged to the Custodian, and the written instructions of
the Trust instructing their purchase shall be considered
the requisite description and designation of the property
so pledged for purposes of the requirements of the
Uniform Commercial Code. Should the Trust fail to cause
a Fund to repay promptly any authorized charges or
advances of cash or securities, subject to the provision
of the second paragraph of this Section 8 regarding
indemnification, the Custodian shall be entitled to use
available cash and to dispose of pledged securities and
property as is necessary to repay any such advances.
9. Effective Period, Termination and Amendment.
This Contract shall become effective as of its execution,
shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by
mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party,
such termination to take effect not sooner than sixty
(60) days after the date of such delivery or mailing;
provided, however that the Custodian shall not act under
Section 2.12 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant
Secretary that the Board of the Trust has approved the
initial use of a particular Securities System as required
in each case by Rule 17f-4 under the 1940 Act; provided
further, however, that the Trust shall not amend or
terminate this Contract in contravention of any
applicable federal or state regulations, or any provision
of the Declaration of Trust/Articles of Incorporation,
and further provided, that the Trust may at any time by
action of its Board (i) substitute another bank or trust
company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a
conservator or receiver for the Custodian by the
appropriate banking regulatory agency or upon the
happening of a like event at the direction of an
appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Trust shall pay to
the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the
Custodian for its costs, expenses and disbursements.
10. Successor Custodian.
If a successor custodian shall be appointed by the Board
of the Trust, the Custodian shall, upon termination,
deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer,
all securities then held by it hereunder for each Fund
and shall transfer to separate accounts of the successor
custodian all of each Fund's securities held in a
Securities System.
If no such successor custodian shall be appointed, the
Custodian shall, in like manner, upon receipt of a
certified copy of a vote of the Board of the Trust,
deliver at the office of the Custodian and transfer such
securities, funds and other properties in accordance with
such vote.
In the event that no written order designating a
successor custodian or certified copy of a vote of the
Board shall have been delivered to the Custodian on or
before the date when such termination shall become
effective, then the Custodian shall have the right to
deliver to a bank or trust company, which is a "bank" as
defined in the 1940 Act, (delete "doing business ...
Massachusetts" unless SSBT is the Custodian) doing
business in Boston, Massachusetts, of its own selection,
having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not
less than $100,000,000, all securities, funds and other
properties held by the Custodian and all instruments held
by the Custodian relative thereto and all other property
held by it under this Contract for each Fund and to
transfer to separate accounts of such successor
custodian all of each Fund's securities held in any
Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under
this Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date
of termination hereof owing to failure of the Trust to
procure the certified copy of the vote referred to or of
the Board to appoint a successor custodian, the Custodian
shall be entitled to fair compensation for its services
during such period as the Custodian retains possession of
such securities, funds and other properties and the
provisions of this Contract relating to the duties and
obligations of the Custodian shall remain in full force
and effect.
11. Interpretive and Additional Provisions.
In connection with the operation of this Contract, the
Custodian and the Trust may from time to time agree on
such provisions interpretive of or in addition to the
provisions of this Contract as may in their joint opinion
be consistent with the general tenor of this Contract.
Any such interpretive or additional provisions shall be
in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional
provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of
Trust/Articles of Incorporation. No interpretive or
additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this
Contract.
12. Massachusetts Law to Apply.
This Contract shall be construed and the provisions
thereof interpreted under and in accordance with laws of
The Commonwealth of Massachusetts.
13. Notices.
Except as otherwise specifically provided herein, Notices
and other writings delivered or mailed postage prepaid to
the Trust at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, or to the Custodian at address
for SSBT only: 225 Franklin Street, Boston,
Massachusetts, 02110, or to such other address as the
Trust or the Custodian may hereafter specify, shall be
deemed to have been properly delivered or given hereunder
to the respective address.
14. Counterparts.
This Contract may be executed simultaneously in two or
more counterparts, each of which shall be deemed an
original.
15. Limitations of Liability.
The Custodian is expressly put on notice of the
limitation of liability as set forth in Article XI of the
Declaration of Trust of those Trusts which are business
trusts and agrees that the obligations and liabilities
assumed by the Trust and any Fund pursuant to this
Contract, including, without limitation, any obligation
or liability to indemnify the Custodian pursuant to
Section 8 hereof, shall be limited in any case to the
relevant Fund and its assets and that the Custodian shall
not seek satisfaction of any such obligation from the
shareholders of the relevant Fund, from any other Fund or
its shareholders or from the Trustees, Officers,
employees or agents of the Trust, or any of them. In
addition, in connection with the discharge and
satisfaction of any claim made by the Custodian against
the Trust, for whatever reasons, involving more than one
Fund, the Trust shall have the exclusive right to
determine the appropriate allocations of liability for
any such claim between or among the Funds.
IN WITNESS WHEREOF, each of the parties has caused this
instrument to be executed in its name and behalf by its duly
authorized representative and its seal to be hereunder
affixed effective as of the 1st day of December, 1993.
ATTEST: INVESTMENT COMPANIES (Except those
listed below)
/s/John G. McGonigle_________ By /s/John G. Donahue_____________
John G. McGonigle John F. Donahue
Secretary Chairman
ATTEST: STATE STREET BANK AND TRUST
COMPANY
/s/ Ed McKenzie______________ By /s/ F. J. Sidoti,
Jr._________________
(Assistant) Secretary Typed Name: Frank J. Sidoti, Jr.
Typed Name: Ed McKenzie Title: Vice President
ATTEST: FEDERATED SERVICES COMPANIY
/s/ Jeannette Fisher-Garber______ By /s/ James J.
Dolan________________
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
TO
CUSTODIAN CONTRACT
Between
FEDERATED INVESTMENT COMPANIES
and
STATE STREET BANK AND TRUST COMPANY
and
FEDERATED SERVICES COMPANY
FEDERATED ARMs FUND
Institutional Shares
Institutional Service Shares
Exhibit 9 (i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
AGREEMENT
for
FUND ACCOUNTING,
SHAREHOLDER RECORDKEEPING,
and
CUSTODY SERVICES PROCUREMENT
AGREEMENT made as of the 1st day of December, 1993, by and between
those investment companies listed on Exhibit 1 as may be amended from
time to time, having their principal office and place of business at
Federated Investors Tower, Pittsburgh, PA 15222-3779 (the "Trust"), on
behalf of the portfolios (individually referred to herein as a "Fund" and
collectively as "Funds") of the Trust, and FEDERATED SERVICES COMPANY, a
Delaware business trust, having its principal office and place of
business at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-
3779 (the "Company").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended
(the "1940 Act"), with authorized and issued shares of capital stock or
beneficial interest ("Shares"); and
WHEREAS, the Trust wishes to retain the Company to provide certain
pricing, accounting and recordkeeping services for each of the Funds,
including any classes of shares issued by any Fund ("Classes"), and the
Company is willing to furnish such services; and
WHEREAS, the Trust desires to appoint the Company as its transfer
agent, dividend disbursing agent, and agent in connection with certain
other activities, and the Company desires to accept such appointment; and
WHEREAS, the Trust desires to appoint the Company as its agent to
select, negotiate and subcontract for custodian services from an approved
list of qualified banks and the Company desires to accept such
appointment; and
WHEREAS, from time to time the Trust may desire and may instruct the
Company to subcontract for the performance of certain of its duties and
responsibilities hereunder to State Street Bank and Trust Company or
another agent (the "Agent"); and
WHEREAS, the words Trust and Fund may be used interchangeably for
those investment companies consisting of only one portfolio;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties
hereto agree as follows:
SECTION ONE: Fund Accounting.
Article 1. Appointment.
The Trust hereby appoints the Company to provide certain pricing and
accounting services to the Funds, and/or the Classes, for the period and
on the terms set forth in this Agreement. The Company accepts such
appointment and agrees to furnish the services herein set forth in return
for the compensation as provided in Article 3 of this Section.
Article 2. The Company and Duties.
Subject to the supervision and control of the Trust's Board of
Trustees or Directors ("Board"), the Company will assist the Trust with
regard to fund accounting for the Trust, and/or the Funds, and/or the
Classes, and in connection therewith undertakes to perform the following
specific services;
A. Value the assets of the Funds and determine the net asset value per
share of each Fund and/or Class, at the time and in the manner from
time to time determined by the Board and as set forth in the
Prospectus and Statement of Additional Information ("Prospectus")
of each Fund;
B. Calculate the net income of each of the Funds, if any;
C. Calculate capital gains or losses of each of the Funds resulting
from sale or disposition of assets, if any;
D. Maintain the general ledger and other accounts, books and financial
records of the Trust, including for each Fund, and/or Class, as
required under Section 31(a) of the 1940 Act and the Rules
thereunder in connection with the services provided by the Company;
E. Preserve for the periods prescribed by Rule 31a-2 under the 1940
Act the records to be maintained by Rule 31a-1 under the 1940 Act
in connection with the services provided by the Company. The
Company further agrees that all such records it maintains for the
Trust are the property of the Trust and further agrees to surrender
promptly to the Trust such records upon the Trust's request;
F. At the request of the Trust, prepare various reports or other
financial documents required by federal, state and other applicable
laws and regulations; and
G. Such other similar services as may be reasonably requested by the
Trust.
Article 3. Compensation and Allocation of Expenses.
A. The Funds will compensate the Company for its services rendered
pursuant to Section One of this Agreement in accordance with the
fees agreed upon from time to time between the parties hereto.
Such fees do not include out-of-pocket disbursements of the Company
for which the Funds shall reimburse the Company upon receipt of a
separate invoice. Out-of-pocket disbursements shall include, but
shall not be limited to, the items agreed upon between the parties
from time to time.
B. The Fund and/or the Class, and not the Company, shall bear the cost
of: custodial expenses; membership dues in the Investment Company
Institute or any similar organization; transfer agency expenses;
investment advisory expenses; costs of printing and mailing stock
certificates, Prospectuses, reports and notices; administrative
expenses; interest on borrowed money; brokerage commissions; taxes
and fees payable to federal, state and other governmental agencies;
fees of Trustees or Directors of the Trust; independent auditors
expenses; Federated Administrative Services and/or Federated
Administrative Services, Inc. legal and audit department expenses
billed to Federated Services Company for work performed related to
the Trust, the Funds, or the Classes; law firm expenses; or other
expenses not specified in this Article 3 which may be properly
payable by the Funds and/or classes.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid no less frequently than monthly, and shall
be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-
pocket expenses by Fund and Class.
D. Any Schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
E. The fee for the period from the effective date of this Agreement
with respect to a Fund or a Class to the end of the initial month
shall be prorated according to the proportion that such period
bears to the full month period. Upon any termination of this
Agreement before the end of any month, the fee for such period
shall be prorated according to the proportion which such period
bears to the full month period. For purposes of determining fees
payable to the Company, the value of the Fund's net assets shall be
computed at the time and in the manner specified in the Fund's
Prospectus.
F. The Company, in its sole discretion, may from time to time
subcontract to, employ or associate with itself such person or
persons as the Company may believe to be particularly suited to
assist it in performing services under this Section One. Such
person or persons may be third-party service providers, or they may
be officers and employees who are employed by both the Company and
the Funds. The compensation of such person or persons shall be
paid by the Company and no obligation shall be incurred on behalf
of the Trust, the Funds, or the Classes in such respect.
SECTION TWO: Shareholder Recordkeeping.
Article 4. Terms of Appointment.
Subject to the terms and conditions set forth in this Agreement, the
Trust hereby appoints the Company to act as, and the Company agrees to
act as, transfer agent and dividend disbursing agent for each Fund's
Shares, and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of any Fund
("Shareholder(s)"), including without limitation any periodic investment
plan or periodic withdrawal program.
As used throughout this Agreement, a "Proper Instruction" means a
writing signed or initialed by one or more person or persons as the Board
shall have from time to time authorized. Each such writing shall set
forth the specific transaction or type of transaction involved. Oral
instructions will be deemed to be Proper Instructions if (a) the Company
reasonably believes them to have been given by a person previously
authorized in Proper Instructions to give such instructions with respect
to the transaction involved, and (b) the Trust, or the Fund, and the
Company promptly cause such oral instructions to be confirmed in writing.
Proper Instructions may include communications effected directly between
electro-mechanical or electronic devices provided that the Trust, or the
Fund, and the Company are satisfied that such procedures afford adequate
safeguards for the Fund's assets. Proper Instructions may only be
amended in writing.
Article 5. Duties of the Company.
The Company shall perform the following services in accordance with
Proper Instructions as may be provided from time to time by the Trust as
to any Fund:
A. Purchases
(1) The Company shall receive orders and payment for the purchase
of shares and promptly deliver payment and appropriate
documentation therefore to the custodian of the relevant Fund,
(the "Custodian"). The Company shall notify the Fund and the
Custodian on a daily basis of the total amount of orders and
payments so delivered.
(2) Pursuant to purchase orders and in accordance with the Fund's
current Prospectus, the Company shall compute and issue the
appropriate number of Shares of each Fund and/or Class and
hold such Shares in the appropriate Shareholder accounts.
(3) For certificated Funds and/or Classes, if a Shareholder or its
agent requests a certificate, the Company, as Transfer Agent,
shall countersign and mail by first class mail, a certificate
to the Shareholder at its address as set forth on the transfer
books of the Funds, and/or Classes, subject to any Proper
Instructions regarding the delivery of certificates.
(4) In the event that any check or other order for the purchase of
Shares of the Fund and/or Class is returned unpaid for any
reason, the Company shall debit the Share account of the
Shareholder by the number of Shares that had been credited to
its account upon receipt of the check or other order, promptly
mail a debit advice to the Shareholder, and notify the Fund
and/or Class of its action. In the event that the amount paid
for such Shares exceeds proceeds of the redemption of such
Shares plus the amount of any dividends paid with respect to
such Shares, the Fund and/the Class or its distributor will
reimburse the Company on the amount of such excess.
B. Distribution
(1) Upon notification by the Funds of the declaration of any
distribution to Shareholders, the Company shall act as
Dividend Disbursing Agent for the Funds in accordance with the
provisions of its governing document and the then-current
Prospectus of the Fund. The Company shall prepare and mail or
credit income, capital gain, or any other payments to
Shareholders. As the Dividend Disbursing Agent, the Company
shall, on or before the payment date of any such distribution,
notify the Custodian of the estimated amount required to pay
any portion of said distribution which is payable in cash and
request the Custodian to make available sufficient funds for
the cash amount to be paid out. The Company shall reconcile
the amounts so requested and the amounts actually received
with the Custodian on a daily basis. If a Shareholder is
entitled to receive additional Shares by virtue of any such
distribution or dividend, appropriate credits shall be made to
the Shareholder's account, for certificated Funds and/or
Classes, delivered where requested; and
(2) The Company shall maintain records of account for each Fund
and Class and advise the Trust, each Fund and Class and its
Shareholders as to the foregoing.
C. Redemptions and Transfers
(1) The Company shall receive redemption requests and redemption
directions and, if such redemption requests comply with the
procedures as may be described in the Fund Prospectus or set
forth in Proper Instructions, deliver the appropriate
instructions therefor to the Custodian. The Company shall
notify the Funds on a daily basis of the total amount of
redemption requests processed and monies paid to the Company
by the Custodian for redemptions.
(2) At the appropriate time upon receiving redemption proceeds
from the Custodian with respect to any redemption, the Company
shall pay or cause to be paid the redemption proceeds in the
manner instructed by the redeeming Shareholders, pursuant to
procedures described in the then-current Prospectus of the
Fund.
(3) If any certificate returned for redemption or other request
for redemption does not comply with the procedures for
redemption approved by the Fund, the Company shall promptly
notify the Shareholder of such fact, together with the reason
therefor, and shall effect such redemption at the price
applicable to the date and time of receipt of documents
complying with said procedures.
(4) The Company shall effect transfers of Shares by the registered
owners thereof.
(5) The Company shall identify and process abandoned accounts and
uncashed checks for state escheat requirements on an annual
basis and report such actions to the Fund.
D. Recordkeeping
(1) The Company shall record the issuance of Shares of each Fund,
and/or Class, and maintain pursuant to applicable rules of the
Securities and Exchange Commission ("SEC") a record of the
total number of Shares of the Fund and/or Class which are
authorized, based upon data provided to it by the Fund, and
issued and outstanding. The Company shall also provide the
Fund on a regular basis or upon reasonable request with the
total number of Shares which are authorized and issued and
outstanding, but shall have no obligation when recording the
issuance of Shares, except as otherwise set forth herein, to
monitor the issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such Shares, which
functions shall be the sole responsibility of the Funds.
(2) The Company shall establish and maintain records pursuant to
applicable rules of the SEC relating to the services to be
performed hereunder in the form and manner as agreed to by the
Trust or the Fund to include a record for each Shareholder's
account of the following:
(a) Name, address and tax identification number (and whether
such number has been certified);
(b) Number of Shares held;
(c) Historical information regarding the account, including
dividends paid and date and price for all transactions;
(d) Any stop or restraining order placed against the account;
(e) Information with respect to withholding in the case of a
foreign account or an account for which withholding is
required by the Internal Revenue Code;
(f) Any dividend reinvestment order, plan application,
dividend address and correspondence relating to the
current maintenance of the account;
(g) Certificate numbers and denominations for any Shareholder
holding certificates;
(h) Any information required in order for the Company to
perform the calculations contemplated or required by this
Agreement.
(3) The Company shall preserve any such records required to be
maintained pursuant to the rules of the SEC for the periods
prescribed in said rules as specifically noted below. Such
record retention shall be at the expense of the Company, and
such records may be inspected by the Fund at reasonable times.
The Company may, at its option at any time, and shall
forthwith upon the Fund's demand, turn over to the Fund and
cease to retain in the Company's files, records and documents
created and maintained by the Company pursuant to this
Agreement, which are no longer needed by the Company in
performance of its services or for its protection. If not so
turned over to the Fund, such records and documents will be
retained by the Company for six years from the year of
creation, during the first two of which such documents will be
in readily accessible form. At the end of the six year
period, such records and documents will either be turned over
to the Fund or destroyed in accordance with Proper
Instructions.
E. Confirmations/Reports
(1) The Company shall furnish to the Fund periodically the
following information:
(a) A copy of the transaction register;
(b) Dividend and reinvestment blotters;
(c) The total number of Shares issued and outstanding in each
state for "blue sky" purposes as determined according to
Proper Instructions delivered from time to time by the
Fund to the Company;
(d) Shareholder lists and statistical information;
(e) Payments to third parties relating to distribution
agreements, allocations of sales loads, redemption fees,
or other transaction- or sales-related payments;
(f) Such other information as may be agreed upon from time to
time.
(2) The Company shall prepare in the appropriate form, file with
the Internal Revenue Service and appropriate state agencies,
and, if required, mail to Shareholders, such notices for
reporting dividends and distributions paid as are required to
be so filed and mailed and shall withhold such sums as are
required to be withheld under applicable federal and state
income tax laws, rules and regulations.
(3) In addition to and not in lieu of the services set forth
above, the Company shall:
(a) Perform all of the customary services of a transfer
agent, dividend disbursing agent and, as relevant, agent
in connection with accumulation, open-account or similar
plans (including without limitation any periodic
investment plan or periodic withdrawal program),
including but not limited to: maintaining all
Shareholder accounts, mailing Shareholder reports and
Prospectuses to current Shareholders, withholding taxes
on accounts subject to back-up or other withholding
(including non-resident alien accounts), preparing and
filing reports on U.S. Treasury Department Form 1099 and
other appropriate forms required with respect to
dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all
purchases and redemptions of Shares and other confirmable
transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and
providing Shareholder account information; and
(b) provide a system which will enable the Fund to monitor
the total number of Shares of each Fund and/or Class sold
in each state ("blue sky reporting"). The Fund shall by
Proper Instructions (i) identify to the Company those
transactions and assets to be treated as exempt from the
blue sky reporting for each state and (ii) verify the
classification of transactions for each state on the
system prior to activation and thereafter monitor the
daily activity for each state. The responsibility of the
Company for each Fund's and/or Class's state blue sky
registration status is limited solely to the recording of
the initial classification of transactions or accounts
with regard to blue sky compliance and the reporting of
such transactions and accounts to the Fund as provided
above.
F. Other Duties
(1) The Company shall answer correspondence from Shareholders
relating to their Share accounts and such other correspondence
as may from time to time be addressed to the Company;
(2) The Company shall prepare Shareholder meeting lists, mail
proxy cards and other material supplied to it by the Fund in
connection with Shareholder Meetings of each Fund; receive,
examine and tabulate returned proxies, and certify the vote of
the Shareholders;
(3) The Company shall establish and maintain facilities and
procedures for safekeeping of stock certificates, check forms
and facsimile signature imprinting devices, if any; and for
the preparation or use, and for keeping account of, such
certificates, forms and devices.
Article 6. Duties of the Trust.
A. Compliance
The Trust or Fund assume full responsibility for the preparation,
contents and distribution of their own and/or their classes'
Prospectus and for complying with all applicable requirements of
the Securities Act of 1933, as amended (the "1933 Act"), the 1940
Act and any laws, rules and regulations of government authorities
having jurisdiction.
B. Share Certificates
The Trust shall supply the Company with a sufficient supply of
blank Share certificates and from time to time shall renew such
supply upon request of the Company. Such blank Share certificates
shall be properly signed, manually or by facsimile, if authorized
by the Trust and shall bear the seal of the Trust or facsimile
thereof; and notwithstanding the death, resignation or removal of
any officer of the Trust authorized to sign certificates, the
Company may continue to countersign certificates which bear the
manual or facsimile signature of such officer until otherwise
directed by the Trust.
C. Distributions
The Fund shall promptly inform the Company of the declaration of
any dividend or distribution on account of any Fund's shares.
Article 7. Compensation and Expenses.
A. Annual Fee
For performance by the Company pursuant to Section Two of this
Agreement, the Trust and/or the Fund agree to pay the Company an
annual maintenance fee for each Shareholder account as agreed upon
between the parties and as may be added to or amended from time to
time. Such fees may be changed from time to time subject to
written agreement between the Trust and the Company. Pursuant to
information in the Fund Prospectus or other information or
instructions from the Fund, the Company may sub-divide any Fund
into Classes or other sub-components for recordkeeping purposes.
The Company will charge the Fund the same fees for each such Class
or sub-component the same as if each were a Fund.
B. Reimbursements
In addition to the fee paid under Article 7A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be added or amended from time to
time. In addition, any other expenses incurred by the Company at
the request or with the consent of the Trust and/or the Fund, will
be reimbursed by the appropriate Fund.
C. Payment
The compensation and out-of-pocket expenses shall be accrued by the
Fund and shall be paid no less frequently than monthly, and shall
be paid daily upon request of the Company. The Company will
maintain detailed information about the compensation and out-of-
pocket expenses by Fund and Class.
D. Any Schedule of compensation agreed to hereunder, as may be
adjusted from time to time, shall be dated and signed by a duly
authorized officer of the Trust and/or the Funds and a duly
authorized officer of the Company.
Article 8. Assignment of Shareholder Recordkeeping.
Except as provided below, no right or obligation under this Section
Two may be assigned by either party without the written consent of
the other party.
(1) This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and
assigns.
(2) The Company may without further consent on the part of the
Trust subcontract for the performance hereof with (A) State
Street Bank and its subsidiary, Boston Financial Data
Services, Inc., a Massachusetts Trust ("BFDS"), which is duly
registered as a transfer agent pursuant to Section 17A(c)(1)
of the Securities Exchange Act of 1934, as amended, or any
succeeding statute ("Section 17A(c)(1)"), or (B) a BFDS
subsidiary duly registered as a transfer agent pursuant to
Section 17A(c)(1), or (C) a BFDS affiliate, or (D) such other
provider of services duly registered as a transfer agent under
Section 17A(c)(1) as Company shall select; provided, however,
that the Company shall be as fully responsible to the Trust
for the acts and omissions of any subcontractor as it is for
its own acts and omissions; or
(3) The Company shall upon instruction from the Trust subcontract
for the performance hereof with an Agent selected by the
Trust, other than BFDS or a provider of services selected by
Company, as described in (2) above; provided, however, that
the Company shall in no way be responsible to the Trust for
the acts and omissions of the Agent.
SECTION THREE: Custody Services Procurement
Article 9. Appointment.
The Trust hereby appoints Company as its agent to evaluate and
obtain custody services from a financial institution that (i) meets
the criteria established in Section 17(f) of the 1940 Act and (ii)
has been approved by the Board as eligible for selection by the
Company as a custodian (the "Eligible Custodian"). The Company
accepts such appointment.
Article 10. The Company and Its Duties.
Subject to the review, supervision and control of the Board, the
Company shall:
(1) evaluate the nature and the quality of the custodial services
provided by the Eligible Custodian;
(2) employ the Eligible Custodian to serve on behalf of the Trust
as Custodian of the Trust's assets substantially on the terms
set forth as the form of agreement in Exhibit 2;
(3) negotiate and enter into agreements with the Custodians for
the benefit of the Trust, with the Trust as a party to each
such agreement. The Company shall not be a party to any
agreement with any such Custodian;
(4) establish procedures to monitor the nature and the quality of
the services provided by the Custodians;
(5) continuously monitor the nature and the quality of services
provided by the Custodians; and
(6) periodically provide to the Trust (i) written reports on the
activities and services of the Custodians; (ii) the nature and
amount of disbursement made on account of the Trust with
respect to each custodial agreement; and (iii) such other
information as the Board shall reasonably request to enable it
to fulfill its duties and obligations under Sections 17(f) and
36(b) of the 1940 Act and other duties and obligations
thereof.
Article 11. Fees and Expenses.
A. Annual Fee
For the performance by the Company pursuant to Section Three of
this Agreement, the Trust and/or the Fund agree to pay the Company
an annual fee as agreed upon between the parties.
B. Payment
In addition to the fee paid under Section 11A above, the Trust
and/or Fund agree to reimburse the Company for out-of-pocket
expenses or advances incurred by the Company for the items agreed
upon between the parties, as may be amended from time to time. In
addition, any other expenses incurred by the Company at the request
or with the consent of the Trust and/or Fund, will be reimbursed by
the appropriate Fund.
Article 12. Representations.
The Company represents and warrants that it has obtained all
required approvals from all government or regulatory authorities
necessary to enter into this arrangement and to provide the
services contemplated in Section Three of this Agreement.
SECTION FOUR: General Provisions.
Article 13. Documents.
A. In connection with the appointment of the Company under this
Agreement, the Trust shall file with the Company the following
documents:
(1) A copy of the Charter and By-Laws of the Trust and all
amendments thereto;
(2) A copy of the resolution of the Board of the Trust authorizing
this Agreement;
(3) Specimens of all forms of outstanding Share certificates of
the Trust or the Funds in the forms approved by the Board of
the Trust with a certificate of the Secretary of the Trust as
to such approval;
(4) All account application forms and other documents relating to
Shareholders accounts; and
(5) A copy of the current Prospectus for each Fund.
B. The Fund will also furnish from time to time the following
documents:
(1) Each resolution of the Board of the Trust authorizing the
original issuance of each Fund's, and/or Class's Shares;
(2) Each Registration Statement filed with the SEC and amendments
thereof and orders relating thereto in effect with respect to
the sale of Shares of any Fund, and/or Class;
(3) A certified copy of each amendment to the governing document
and the By-Laws of the Trust;
(4) Certified copies of each vote of the Board authorizing
officers to give Proper Instructions to the Custodian and
agents for fund accountant, custody services procurement, and
shareholder recordkeeping or transfer agency services;
(5) Specimens of all new Share certificates representing Shares of
any Fund, accompanied by Board resolutions approving such
forms;
(6) Such other certificates, documents or opinions which the
Company may, in its discretion, deem necessary or appropriate
in the proper performance of its duties; and
(7) Revisions to the Prospectus of each Fund.
Article 14. Representations and Warranties.
A. Representations and Warranties of the Company
The Company represents and warrants to the Trust that:
(1) It is a business trust duly organized and existing and in good
standing under the laws of the State of Delaware.
(2) It is duly qualified to carry on its business in the State of
Delaware.
(3) It is empowered under applicable laws and by its charter and
by-laws to enter into and perform this Agreement.
(4) All requisite corporate proceedings have been taken to
authorize it to enter into and perform its obligations under
this Agreement.
(5) It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
(6) It is in compliance with federal securities law requirements
and in good standing as a transfer agent.
B. Representations and Warranties of the Trust
The Trust represents and warrants to the Company that:
(1) It is an investment company duly organized and existing and in
good standing under the laws of its state of organization;
(2) It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform its obligations under this
Agreement;
(3) All corporate proceedings required by said Charter and By-Laws
have been taken to authorize it to enter into and perform its
obligations under this Agreement;
(4) The Trust is an open-end investment company registered under
the 1940 Act; and
(5) A registration statement under the 1933 Act will be effective,
and appropriate state securities law filings have been made
and will continue to be made, with respect to all Shares of
each Fund being offered for sale.
Article 15. Indemnification.
A. Indemnification by Trust
The Company shall not be responsible for and the Trust or Fund
shall indemnify and hold the Company, including its officers,
directors, shareholders and their agents employees and affiliates,
harmless against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or
attributable to:
(1) The acts or omissions of any Custodian,
(2) The Trust's or Fund's refusal or failure to comply with the
terms of this Agreement, or which arise out of the Trust's or
The Fund's lack of good faith, negligence or willful
misconduct or which arise out of the breach of any
representation or warranty of the Trust or Fund hereunder or
otherwise.
(3) The reliance on or use by the Company or its agents or
subcontractors of information, records and documents in proper
form which
(a) are received by the Company or its agents or
subcontractors and furnished to it by or on behalf of the
Fund, its Shareholders or investors regarding the
purchase, redemption or transfer of Shares and
Shareholder account information; or
(b) have been prepared and/or maintained by the Fund or its
affiliates or any other person or firm on behalf of the
Trust.
(4) The reliance on, or the carrying out by the Company or its
agents or subcontractors of Proper Instructions of the Trust
or the Fund.
(5) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the
securities laws or regulations of any state that such Shares
be registered in such state or in violation of any stop order
or other determination or ruling by any federal agency or any
state with respect to the offer or sale of such Shares in such
state.
Provided, however, that the Company shall not be protected by
this Article 15.A. from liability for any act or omission
resulting from the Company's willful misfeasance, bad faith,
gross negligence or reckless disregard of its duties.
B. Indemnification by the Company
The Company shall indemnify and hold the Trust or each Fund
harmless from and against any and all losses, damages, costs,
charges, counsel fees, payments, expenses and liabilities arising
out of or attributable to any action or failure or omission to act
by the Company as a result of the Company's willful misfeasance,
bad faith, gross negligence or reckless disregard of its duties.
C. Reliance
At any time the Company may apply to any officer of the Trust or
Fund for instructions, and may consult with legal counsel with
respect to any matter arising in connection with the services to be
performed by the Company under this Agreement, and the Company and
its agents or subcontractors shall not be liable and shall be
indemnified by the Trust or the appropriate Fund for any action
reasonably taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel provided such
action is not in violation of applicable federal or state laws or
regulations. The Company, its agents and subcontractors shall be
protected and indemnified in recognizing stock certificates which
are reasonably believed to bear the proper manual or facsimile
signatures of the officers of the Trust or the Fund, and the proper
countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
D. Notification
In order that the indemnification provisions contained in this
Article 15 shall apply, upon the assertion of a claim for which
either party may be required to indemnify the other, the party
seeking indemnification shall promptly notify the other party of
such assertion, and shall keep the other party advised with respect
to all developments concerning such claim. The party who may be
required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The
party seeking indemnification shall in no case confess any claim or
make any compromise in any case in which the other party may be
required to indemnify it except with the other party's prior
written consent.
Article 16. Termination of Agreement.
This Agreement may be terminated by either party upon one hundred
twenty (120) days written notice to the other. Should the Trust
exercise its rights to terminate, all out-of-pocket expenses
associated with the movement of records and materials will be borne
by the Trust or the appropriate Fund. Additionally, the Company
reserves the right to charge for any other reasonable expenses
associated with such termination. The provisions of Article 15
shall survive the termination of this Agreement.
Article 17. Amendment.
This Agreement may be amended or modified by a written agreement
executed by both parties.
Article 18. Interpretive and Additional Provisions.
In connection with the operation of this Agreement, the Company and
the Trust may from time to time agree on such provisions
interpretive of or in addition to the provisions of this Agreement
as may in their joint opinion be consistent with the general tenor
of this Agreement. Any such interpretive or additional provisions
shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions
shall contravene any applicable federal or state regulations or any
provision of the Charter. No interpretive or additional provisions
made as provided in the preceding sentence shall be deemed to be an
amendment of this Agreement.
Article 19. Governing Law.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts
Article 20. Notices.
Except as otherwise specifically provided herein, Notices and other
writings delivered or mailed postage prepaid to the Trust at
Federated Investors Tower, Pittsburgh, Pennsylvania, 15222-3779, or
to the Company at Federated Investors Tower, Pittsburgh,
Pennsylvania, 15222-3779, or to such other address as the Trust or
the Company may hereafter specify, shall be deemed to have been
properly delivered or given hereunder to the respective address.
Article 21. Counterparts.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
Article 22. Limitations of Liability of Trustees and Shareholders of
the Trust.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Trust and signed by an authorized officer of
the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be
deemed to have been made by any of them individually or to impose
any liability on any of them personally, and the obligations of
this Agreement are not binding upon any of the Trustees or
Shareholders of the Trust, but bind only the appropriate property
of the Fund, or Class, as provided in the Declaration of Trust.
Article 23. Limitations of Liability of Trustees and Shareholders of
the Company.
The execution and delivery of this Agreement have been authorized
by the Trustees of the Company and signed by an authorized officer
of the Company, acting as such, and neither such authorization by
such Trustees nor such execution and delivery by such officer shall
be deemed to have been made by any of them individually or to
impose any liability on any of them personally, and the obligations
of this Agreement are not binding upon any of the Trustees or
Shareholders of the Company, but bind only the property of the
Company as provided in the Declaration of Trust.
Article 24. Assignment.
This Agreement and the rights and duties hereunder shall not be
assignable with respect to the Trust or the Funds by either of the
parties hereto except by the specific written consent of the other
party.
Article 25. Merger of Agreement.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written.
Article 26. Successor Agent.
If a successor agent for the Trust shall be appointed by the Trust,
the Company shall upon termination of this Agreement deliver to
such successor agent at the office of the Company all properties of
the Trust held by it hereunder. If no such successor agent shall
be appointed, the Company shall at its office upon receipt of
Proper Instructions deliver such properties in accordance with such
instructions.
In the event that no written order designating a successor agent or
Proper Instructions shall have been delivered to the Company on or
before the date when such termination shall become effective, then
the Company shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the 1940 Act, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$2,000,000, all properties held by the Company under this
Agreement. Thereafter, such bank or trust company shall be the
successor of the Company under this Agreement.
Article 27. Force Majeure.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Fund as a
result of work stoppage, power or other mechanical failure, natural
disaster, governmental action, communication disruption or other
impossibility of performance.
Article 28. Assignment; Successors.
This Agreement shall not be assigned by either party without the
prior written consent of the other party, except that either party
may assign to a successor all of or a substantial portion of its
business, or to a party controlling, controlled by, or under common
control with such party. Nothing in this Article 28 shall prevent
the Company from delegating its responsibilities to another entity
to the extent provided herein.
Article 29. Severability.
In the event any provision of this Agreement is held illegal, void
or unenforceable, the balance shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first
above written.
ATTEST: INVESTMENT COMPANIES (listed on Exhibit 1)
/s/ John W. McGonigle_______ By:__/s/ John F. Donahue___
John W. McGonigle John F. Donahue
Secretary Chairman
ATTEST: FEDERATED SERVICES COMPANY
/s/ Jeannette Fisher-Garber By:_/s/ James J. Dolan_____
Jeannette Fisher-Garber James J. Dolan
Secretary President
EXHIBIT 1
TO
FUND ACCOUNTING, SHAREHOLDER RECORDKEEPING,
AND
CUSTODY SERVICES PROCUREMENT AGREEMENT
FEDERATED ARMS FUND
Institutional Shares
Institutional Service Shares
-1-
Exhibit 9(ii) to Form N-1A
Exhibit 10 to Item 601/Reg. S-K
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this
first day of March, 1994, between those investment companies
listed on Exhibit 1, as may be amended from time to time, having
their principal office and place of business at Federated
Investors Tower, Pittsburgh PA 15222-3779 (individually
referred to herein as "Fund" and collectively referred to as
"Funds), on behalf of the portfolios of the Funds, and Federated
Administrative Services, a Delaware business trust (herein
called "FAS").
WHEREAS, the Funds desire to retain FAS as their
Administrator to provide them with Administrative Services (as
herein defined), and FAS is willing to render such services;
WHEREAS, the Funds are registered as open-end management
investment companies under the Investment Company Act of 1940,
as amended (the "1940 Act"), with authorized and issued shares
of capital stock or beneficial interest ("Shares"); and
NOW, THEREFORE, in consideration of the premises and mutual
covenants set forth herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Funds hereby
appoint FAS as Administrator of the Funds on the terms and
conditions set forth in this Agreement; and FAS hereby accepts
such appointment and agrees to perform the services and duties
set forth in Section 2 of this Agreement in consideration of the
compensation provided for in Section 4 hereof.
2. Services and Duties. As Administrator, and subject to
the supervision and control of the Funds' Boards of Trustees or
Directors, as applicable (the "Boards"), FAS will provide
facilities, equipment, and personnel to carry out the following
administrative services for operation of the business and
affairs of the Funds and each of their portfolios:
(a) prepare, file, and maintain the
Funds' governing documents and any amendments
thereto, including the Declaration of Trust or
Articles of Incorporation, as appropriate,(which has
already been prepared and filed), the By-laws and
minutes of meetings of their Boards, Committees, and
shareholders;
(b) prepare and file with the
Securities and Exchange Commission and the
appropriate state securities authorities the
registration statements for the Funds and the Funds'
shares and all amendments thereto, reports to
regulatory authorities and shareholders,
prospectuses, proxy statements, and such other
documents all as may be necessary to enable the Funds
to make continuous offerings of their shares, as
applicable;
(c) prepare, negotiate, and
administer contracts on behalf of the Funds with,
among others, each Fund's investment adviser,
distributor, custodian, and transfer agent, subject
to any applicable restrictions of the Boards or the
1940 Act;
(d) supervise the Funds' custodians
in the maintenance of the Funds' general ledgers and
in the preparation of the Funds' financial
statements, including oversight of expense accruals
and payments, the determination of the net asset
value of the Funds and the declaration and payment of
dividends and other distributions to shareholders;
(e) calculate performance data of
the Funds for dissemination to information services
covering the investment company industry;
(f) prepare and file the Funds' tax
returns;
(g) examine and review the
operations of the Funds' custodians and transfer
agents;
(h) coordinate the layout and
printing of publicly disseminated prospectuses and
reports;
(i) perform internal audit
examinations in accordance with a charter to be
adopted by FAS and the Funds;
(j) assist with the design,
development, and operation of the Funds;
(k) provide individuals reasonably
acceptable to the Funds' Boards for nomination,
appointment, or election as officers of the Funds,
who will be responsible for the management of certain
of the Funds' affairs as determined by the Funds'
Boards; and
(l) consult with the Funds and their
Boards of Trustees or Directors, as appropriate, on
matters concerning the Funds and their affairs.
The foregoing, along with any additional services that FAS
shall agree in writing to perform for the Funds hereunder, shall
hereafter be referred to as "Administrative Services."
Administrative Services shall not include any duties, functions,
or services to be performed for any Fund by such Fund's
investment adviser, distributor, custodian, transfer agent, or
shareholder service agent, pursuant to their respective
agreements with such Fund.
3. Expenses. FAS shall be responsible for expenses
incurred in providing office space, equipment, and personnel as
may be necessary or convenient to provide the Administrative
Services to the Fund, including the compensation of FAS
employees who serve on the Funds' Boards, or as officers of the
Funds. Each Fund shall be responsible for all other expenses
incurred by FAS on behalf of such Fund, including without
limitation postage and courier expenses, printing expenses,
travel expenses, registration fees, filing fees, fees of outside
counsel and independent auditors, insurance premiums, fees
payable to members of such Fund's Board who are not FAS
employees, and trade association dues.
4. Compensation. For the Administrative Services
provided, each Fund hereby agrees to pay and FAS hereby agrees
to accept as full compensation for its services rendered
hereunder an administrative fee at an annual rate, payable
daily, as specified below, based upon the total assets of all of
the Funds:
Maximum Administrative Average Daily Net Assets
Fee of the Funds
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250
million
.075% on assets in excess of
$750 million
However, in no event shall the administrative fee received
during any year of this Agreement be less than, or be paid at a
rate less than would aggregate, $125,000, per individual Fund,
with an additional $30,000 for each class of shares added to any
such Fund after the date hereof.
5. Standard of Care.
(a) FAS shall not be liable for any
error of judgment or mistake of law or for any loss
suffered by any Fund in connection with the matters
to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or
gross negligence on its part in the performance of
its duties or from reckless disregard by it of its
obligations and duties under this Agreement. FAS
shall be entitled to rely on and may act upon advice
of counsel (who may be counsel for such Fund) on all
matters, and shall be without liability for any
action reasonably taken or omitted pursuant to such
advice. Any person, even though also an officer,
trustee, partner, employee or agent of FAS, who may
be or become a member of such Fund's Board, officer,
employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any
business of such Fund (other than services or
business in connection with the duties of FAS
hereunder) to be rendering such services to or acting
solely for such Fund and not as an officer, trustee,
partner, employee or agent or one under the control
or direction of FAS even though paid by FAS.
(b) This Section 5 shall survive
termination of this Agreement.
6. Duration and Termination. The initial term of this
Agreement with respect to each Fund shall commence on the date
hereof, and extend for a period of one year, renewable annually
by the approval of the Board of Directors/Trustees of each Fund.
7. Amendment. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which an
enforcement of the change, waiver, discharge or termination is
sought.
8. Limitations of Liability of Trustees or Officers,
Employees, Agents and Shareholders of the Funds. FAS is
expressly put on notice of the limitation of liability as set
forth in the Declaration of Trust of each Fund that is a
Massachusetts business trust and agrees that the obligations
assumed by each such Fund pursuant to this Agreement shall be
limited in any case to such Fund and its assets and that FAS
shall not seek satisfaction of any such obligations from the
shareholders of such Fund, the Trustees, Officers, Employees or
Agents of such Fund, or any of them.
9. Limitations of Liability of Trustees and Shareholders
of FAS. The execution and delivery of this Agreement have been
authorized by the Trustees of FAS and signed by an authorized
officer of FAS, acting as such, and neither such authorization
by such Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, and the
obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FAS, but bind only the trust
property of FAS as provided in the Declaration of Trust of FAS.
10. Notices. Notices of any kind to be given hereunder
shall be in writing (including facsimile communication) and
shall be duly given if delivered to any Fund at the following
address: Federated Investors Tower, Pittsburgh, PA 15222-3779,
Attention: President and if delivered to FAS at Federated
Investors Tower, Pittsburgh, PA 15222-3779, Attention:
President.
11. Miscellaneous. This Agreement constitutes the entire
agreement between the parties hereto and supersedes any prior
agreement with respect to the subject hereof whether oral or
written. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit
any of the provisions hereof or otherwise affect their
construction or effect. If any provision of this Agreement
shall be held or made invalid by a court or regulatory agency
decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby. Subject to the
provisions of Section 5, hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and
their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein shall
be construed in a manner inconsistent with the Investment
Company Act of 1940 or any rule or regulation promulgated by the
Securities and Exchange Commission thereunder.
12. Counterparts. This Agreement may be executed by
different parties on separate counterparts, each of which, when
so executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same
instrument.
13. Assignment; Successors. This Agreement shall not be
assigned by any party without the prior written consent of FAS,
in the case of assignment by any Fund, or of the Funds, in the
case of assignment by FAS, except that any party may assign to a
successor all of or a substantial portion of its business to a
party controlling, controlled by, or under common control with
such party. Nothing in this Section 14 shall prevent FAS from
delegating its responsibilities to another entity to the extent
provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as
of the day and year first above written.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Administrative Services
By: /s/ Edward C. Gonzales
Edward C. Gonzales
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
EXHIBIT 1
TO
ADMINISTRATIVE SERVICES AGREEMENT
FEDERATED ARMS FUND
Institutional Shares
Institutional Service Shares
-1-
Exhibit 9(iii) to Form N-1A
Exhibit 10 to Item 601/Reg. S-K
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as
of this 1st day of March, 1994, by the Boards of Directors
or Trustees, as applicable (the "Boards"), of those
investment companies listed on Exhibit 1 hereto as may be
amended from time to time, having their principal office and
place of business at Federated Investors Tower, Pittsburgh,
PA 15222-3779 (individually referred to herein as a "Fund"
and collectively as "Funds").
1. This Plan is adopted to allow the Funds to
make payments as contemplated herein to obtain certain
personal services for shareholders and/or the maintenance of
shareholder accounts ("Services").
2. This Plan is designed to compensate Federated
Shareholder Services ("FSS") for providing personal services
and/or the maintenance of shareholder accounts to the Funds
and their shareholders. In compensation for the services
provided pursuant to this Plan, FSS may be paid a monthly
fee computed at the annual rate not to exceed .25 of 1% of
the average aggregate net asset value of the shares of each
Fund held during the month.
3. Any payments made by the Funds to FSS
pursuant to this Plan will be made pursuant to a
"Shareholder Services Agreement" between FSS and each of the
Funds.
4. Quarterly in each year that this Plan remains
in effect, FSS shall prepare and furnish to the Boards of
the Funds, and the Boards shall review, a written report of
the amounts expended under the Plan.
5. This Plan shall become effective with regard
to each Fund (i) after approval by majority votes of: (a)
such Fund's Board; and (b) the members of the Board of such
Fund who are not interested persons of such Fund and have no
direct or indirect financial interest in the operation of
such Fund's Plan or in any related documents to the Plan
("Independent Trustees or Directors"), cast in person at a
meeting called for the purpose of voting on the Plan.
6. This Plan shall remain in effect with respect
to each Fund presently set forth on an exhibit and any
subsequent Fund added pursuant to an exhibit during the
initial year of this Plan for the period of one year from
the date set forth above and may be continued thereafter if
this Plan is approved with respect to each Fund at least
annually by a majority of the relevant Fund's Board and a
majority of the Independent Trustees or
Directors, of such Fund as applicable, cast in person at a
meeting called for the purpose of voting on the renewal of
such Plan. If this Plan is adopted with respect to a fund
after the first annual approval by the Trustees or Directors
as described above, this Plan will be effective as to that
Fund at such time as Exhibit 1 hereto is amended to add such
Fund and will continue in effect until the next annual
approval of this Plan by the Funds' Boards and thereafter
for successive periods of one year subject to approval as
described above.
7. All material amendments to this Plan must be
approved by a vote of the Board of each Fund and of the
Independent Directors or Trustees of such Fund, cast in
person at a meeting called for such purpose.
8. This Plan may be terminated as follows:
(a) at any time, without the payment of any
penalty, by the vote of a majority of the Independent
Board Members of any Fund or by a vote of a majority
of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on
sixty (60) days' written notice to the parties to
this Agreement; or
(b) by any party to the Agreement without cause
by giving the other party at least sixty (60) days'
written notice of its intention to terminate.
9. While this Plan shall be in effect, the
selection and nomination of Independent Directors or
Trustees of each Fund shall be committed to the discretion
of the Independent Directors or Trustees then in office.
10. All agreements with any person relating
to the implementation of this Plan shall be in writing and
any agreement related to this Plan shall be subject to
termination, without penalty, pursuant to the provisions of
Paragraph 8 herein.
11. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth
of Pennsylvania.
Witness the due execution hereof this as of the
date set forth above.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
EXHIBIT 1
TO
SHAREHOLDER SERVICES PLAN
FEDERATED ARMS FUND
Institutional Shares
Institutional Services
-1-
Exhibit 9(iv) to Form N-1A
Exhibit 10 to Item 601/Reg. S-K
SHAREHOLDER SERVICES AGREEMENT
AGREEMENT made as of the first day of March, 1994, by
and between those investment companies listed on Exhibit 1,
as may be amended from time to time, having their principal
office and place of business at Federated Investors Tower,
Pittsburgh, PA 15222-3779 and who have approved a
Shareholder Services Plan (the "Plan") and this form of
Agreement (individually referred to herein as a "Fund" and
collectively as "Funds") and Federated Shareholder Services,
a Delaware business trust, having its principal office and
place of business at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779 ("FSS").
1. The Funds hereby appoint FSS to render or cause to
be rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the
Funds ("Services"). In addition to providing Services
directly to shareholders of the Funds, FSS is hereby
appointed the Funds' agent to select, negotiate and
subcontract for the performance of Services. FSS hereby
accepts such appointments. FSS agrees to provide or cause
to be provided Services which, in its best judgment (subject
to supervision and control of the Funds' Boards of Trustees
or Directors, as applicable), are necessary or desirable for
shareholders of the Funds. FSS further agrees to provide
the Funds, upon request, a written description of the
Services which FSS is providing hereunder.
2. During the term of this Agreement, each Fund will
pay FSS and FSS agrees to accept as full compensation for
its services rendered hereunder a fee at an annual rate,
calculated daily and payable monthly, up to 0.25% of 1% of
average net assets of each Fund.
For the payment period in which this Agreement becomes
effective or terminates with respect to any Fund, there
shall be an appropriate proration of the monthly fee on the
basis of the number of days that this Agreement is in effect
with respect to such Fund during the month. To enable the
Funds to comply with an applicable exemptive order, FSS
represents that the fees received pursuant to this Agreement
will be disclosed to and authorized by any person or entity
receiving Services, and will not result in an excessive fee
to FSS.
3. This Agreement shall continue in effect for one
year from the date of its execution, and thereafter for
successive periods of one year only if the form of this
Agreement is approved at least annually by the Board of each
Fund, including a majority of the members of the Board of
the Fund who are not interested persons of the Fund and have
no direct or indirect financial interest in the operation of
the Funds' Plan or in any related documents to the Plan
("Independent Board Members") cast in person at a meeting
called for that purpose.
4. Notwithstanding paragraph 3, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any
penalty, by the vote of a majority of the Independent
Board Members of any Fund or by a vote of a majority
of the outstanding voting securities of any Fund as
defined in the Investment Company Act of 1940 on
sixty (60) days' written notice to the parties to
this Agreement;
(b) automatically in the event of the
Agreement's assignment as defined in the Investment
Company Act of 1940; and
(c) by any party to the Agreement without cause
by giving the other party at least sixty (60) days'
written notice of its intention to terminate.
5. FSS agrees to obtain any taxpayer identification
number certification from each shareholder of the Funds to
which it provides Services that is required under Section
3406 of the Internal Revenue Code, and any applicable
Treasury regulations, and to provide each Fund or its
designee with timely written notice of any failure to obtain
such taxpayer identification number certification in order
to enable the implementation of any required backup
withholding.
6. FSS shall not be liable for any error of judgment
or mistake of law or for any loss suffered by any Fund in
connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its
duties or from reckless disregard by it of its obligations
and duties under this Agreement. FSS shall be entitled to
rely on and may act upon advice of counsel (who may be
counsel for such Fund) on all matters, and shall be without
liability for any action reasonably taken or omitted
pursuant to such advice. Any person, even though also an
officer, trustee, partner, employee or agent of FSS, who may
be or become a member of such Fund's Board, officer,
employee or agent of any Fund, shall be deemed, when
rendering services to such Fund or acting on any business of
such Fund (other than services or business in connection
with the duties of FSS hereunder) to be rendering such
services to or acting solely for such Fund and not as an
officer, trustee, partner, employee or agent or one under
the control or direction of FSS even though paid by FSS.
This Section 6 shall survive termination of this
Agreement.
7. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which an
enforcement of the change, waiver, discharge or termination
is sought.
8. FSS is expressly put on notice of the limitation
of liability as set forth in the Declaration of Trust of
each Fund that is a Massachusetts business trust and agrees
that the obligations assumed by each such Fund pursuant to
this Agreement shall be limited in any case to such Fund and
its assets and that FSS shall not seek satisfaction of any
such obligations from the shareholders of such Fund, the
Trustees, Officers, Employees or Agents of such Fund, or any
of them.
9. The execution and delivery of this Agreement have
been authorized by the Trustees of FSS and signed by an
authorized officer of FSS, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on
any of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees or
shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
10. Notices of any kind to be given hereunder shall be
in writing (including facsimile communication) and shall be
duly given if delivered to any Fund and to such Fund at the
following address: Federated Investors Tower, Pittsburgh,
PA 15222-3779, Attention: President and if delivered to
FSS at Federated Investors Tower, Pittsburgh, PA 15222-
3779, Attention: President.
11. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior
agreement with respect to the subject hereof whether oral or
written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision,
statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of
Sections 3 and 4, hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein
shall be construed in a manner inconsistent with the
Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission
thereunder.
12. This Agreement may be executed by different
parties on separate counterparts, each of which, when so
executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same
instrument.
13. This Agreement shall not be assigned by any party
without the prior written consent of FSS in the case of
assignment by any Fund, or of the Funds in the case of
assignment by FSS, except that any party may assign to a
successor all of or a substantial portion of its business to
a party controlling, controlled by, or under common control
with such party. Nothing in this Section 14 shall prevent
FSS from delegating its responsibilities to another entity
to the extent provided herein.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below
as of the day and year first above written.
Investment Companies (listed
on Exhibit 1)
By: /s/ John F. Donahue
John F. Donahue
Chairman
Attest: /s/ John W. McGonigle
John W. McGonigle
Federated Shareholder Services
By: /s/ James J. Dolan
Title: President
Attest: /s/ John W. McGonigle
John W. McGonigle
EXHIBIT 1
TO
SHAREHOLDER SERVICES AGREEMENT
FEDERATED ARMS FUND
Institutional Shares
Institutional Service Shares
FSS subcontract 1
Exhibit 9(v) to Form N-1A
Exhibit 10 to Item 601/Reg. S-K
SHAREHOLDER SERVICES SUB-CONTRACT
This Agreement is made between the Financial
Institution executing this Agreement ("Provider") and
Federated Shareholder Services ("FSS") on behalf of the
investment companies listed in Exhibit A hereto (the
"Funds"), for whom FSS administers the Shareholder Services
Plan ("Plan") and who have approved this form of Agreement.
In consideration of the mutual covenants hereinafter
contained, it is hereby agreed by and between the parties
hereto as follows:
1. FSS hereby appoints Provider to render or cause to
be rendered personal services to shareholders of the Funds
and/or the maintenance of accounts of shareholders of the
Funds ("Services"). Provider agrees to provide Services
which, in its best judgment, are necessary or desirable for
its customers who are investors in the Funds. Provider
further agrees to provide FSS, upon request, a written
description of the Services which Provider is providing
hereunder.
2. During the term of this Agreement, the Funds will
pay the Provider fees as set forth in a written schedule
delivered to the Provider pursuant to this Agreement. The
fee schedule for Provider may be changed by FSS sending a
new fee schedule to Provider pursuant to Paragraph 9 of this
Agreement. For the payment period in which this Agreement
becomes effective or terminates, there shall be an
appropriate proration of the fee on the basis of the number
of days that this Agreement is in effect during the quarter.
To enable the Funds to comply with an applicable exemptive
order, Provider represents that the fees received pursuant
to this Agreement will be disclosed to its customers, will
be authorized by its customers, and will not result in an
excessive fee to the Provider.
3. The Provider understands that the Department of
Labor views ERISA as prohibiting fiduciaries of
discretionary ERISA assets from receiving shareholder
service fees or other compensation from funds in which the
fiduciary's discretionary ERISA assets are invested. To
date, the Department of Labor has not issued any exemptive
order or advisory opinion that would exempt fiduciaries from
this interpretation. Without specific authorization from
the Department of Labor, fiduciaries should carefully avoid
investing discretionary assets in any fund pursuant to an
arrangement where the fiduciary is to be compensated by the
fund for such investment. Receipt of such compensation
could violate ERISA provisions against fiduciary self-
dealing and conflict of interest and could subject the
fiduciary to substantial penalties.
4. The Provider agrees not to solicit or cause to be
solicited directly, or indirectly at any time in the future,
any proxies from the shareholders of a Fund in opposition to
proxies solicited by management of the Fund, unless a court
of competent jurisdiction shall have determined that the
conduct of a majority of the Board of Trustees or Directors
of the Fund constitutes willful misfeasance, bad faith,
gross negligence or reckless disregard of their duties.
This paragraph 4 will survive the term of this Agreement.
5. This Agreement shall continue in effect for one
year from the date of its execution, and thereafter for
successive periods of one year if the form of this Agreement
is approved at least annually by the Board of each Fund,
including a majority of the members of the Board of the Fund
who are not interested persons of the Fund and have no
direct or indirect financial interest in the operation of
the Fund's Plan or in any related documents to the Plan
("Disinterested Board Members") cast in person at a meeting
called for that purpose.
6. Notwithstanding paragraph 5, this Agreement may be
terminated as follows:
(a) at any time, without the payment of any
penalty, by the vote of a majority of the
Disinterested Board Members of the Fund or by a vote
of a majority of the outstanding voting securities of
the Fund as defined in the Investment Company Act of
1940 on not more than sixty (60) days' written notice
to the parties to this Agreement;
(b) automatically in the event of the
Agreement's assignment as defined in the Investment
Company Act of 1940; and
(c) by either party to the Agreement without
cause by giving the other party at least sixty (60)
days' written notice of its intention to terminate.
7. The Provider agrees to obtain any taxpayer
identification number certification from its customers
required under Section 3406 of the Internal Revenue Code,
and any applicable Treasury regulations, and to provide the
Fund or its designee with timely written notice of any
failure to obtain such taxpayer identification number
certification in order to enable the implementation of any
required backup withholding.
8. The execution and delivery of this Agreement have
been authorized by the Trustees of FSS and signed by an
authorized officer of FSS, acting as such, and neither such
authorization by such Trustees nor such execution and
delivery by such officer shall be deemed to have been made
by any of them individually or to impose any liability on
any of them personally, and the obligations of this
Agreement are not binding upon any of the Trustees or
shareholders of FSS, but bind only the trust property of FSS
as provided in the Declaration of Trust of FSS.
9. Notices of any kind to be given hereunder shall be
in writing (including facsimile communication) and shall be
duly given if delivered to Provider at the address set forth
below and if delivered to FSS at Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President.
10. This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior
agreement with respect to the subject hereof whether oral or
written. If any provision of this Agreement shall be held
or made invalid by a court or regulatory agency decision,
statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. Subject to the provisions of
Sections 5 and 6, hereof, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto
and their respective successors and shall be governed by
Pennsylvania law; provided, however, that nothing herein
shall be construed in a manner inconsistent with the
Investment Company Act of 1940 or any rule or regulation
promulgated by the Securities and Exchange Commission
thereunder.
11. This Agreement may be executed by different
parties on separate counterparts, each of which, when so
executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same
instrument.
12. This Agreement shall not be assigned by any party
without the prior written consent of FSS in the case of
assignment by Provider, or of Provider in the case of
assignment by FSS, except that any party may assign to a
successor all of or a substantial portion of its business to
a party controlling, controlled by, or under common control
with such party.
13. This Agreement may be amended by FSS from time to
time by the following procedure. FSS will mail a copy of
the amendment to the Provider's address, as shown below. If
the Provider does not object to the amendment within thirty
(30) days after its receipt, the amendment will become part
of the Agreement. The Provider's objection must be in
writing and be received by FSS within such thirty days.
14. This Agreement may be terminated with regard to a
particular Fund or Class at any time, without the payment of
any penalty, by FSS or by the vote of a majority of the
Disinterested Trustees or Directors, as applicable, or by a
majority of the outstanding voting securities of the
particular Fund or Class on not more than sixty (60) days'
written notice to the Provider. This Agreement may be
terminated by Provider on sixty (60) days' written notice
to FSS.
15. The Provider acknowledges and agrees that FSS has
entered into this Agreement solely in the capacity of agent
for the Funds and administrator of the Plan. The Provider
agrees not to claim that FSS is liable for any
responsibilities or amounts due by the Funds hereunder.
[Provider]
Address
City State Zip Code
Dated: By:
Authoried Signature
Title
Print Name of Authorized
Signature
FEDERATED SHAREHOLDER SERVICES
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
By:
Vice President
EXHIBIT A to Shareholder Services Sub-Contract with
Funds covered by this Agreement:
FEDERATED ARMs FUND
Institutional Shares
Institutional Service Shares
Shareholder Service Fees
1. During the term of this Agreement, FSS will pay
Provider a quarterly fee. This fee will be computed at the
annual rate of ______ of the average net asset value of
shares of the Funds held during the quarter in accounts for
which the Provider provides Services under this Agreement,
so long as the average net asset value of Shares in the
Funds during the quarter equals or exceeds such minimum
amount as FSS shall from time to time determine and
communicate in writing to the Provider.
2. For the quarterly period in which the Agreement
becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the
number of days that the Agreement is in effect during the
quarter.
1
Exhibit 2 under Form N1-A
Exhibit 3(b) under Item 601/Reg. S-K
FEDERATED U.S. GOVERNMENT FUND
BY-LAWS
AS RESTATED AND AMENDED
(Effective November 20, 1986)
FEDERATED U.S. GOVERNMENT FUND
OUTLINE OF BY-LAWS
Page
Article I Officers and Their Election 1
1. Officers 1
2. Election of Officers 1
3. Resignations and Removals and Vacancies 1
Article II Powers
and Duties of Trustees and Officers 1
1. Trustees 1
2. Chairman of the Trustees 1
3. President 2
4. Vice President 2
5. Secretary 2
6. Treasurer 2
7. Assistant Vice President 2
8. Assistant Secretaries and Assistant Treasurers
3
9. Salaries 3
Article III Powers
and Duties of the Executive and Other Committees 3
1. Executive and Other Committees 3
2. Vacancies in Executive Committee 3
3. Executive Committee to Report to Trustees 3
4. Procedure of Executive Committee 3
5. Powers of Executive Committee 3
6. Compensation 4
7. Informal Action by Executive Committee or Other
Committees 4
Article IV
Shareholders' Meetings 4
1. Special Meetings 4
2. Notices 4
3. Place of Meetings 4
4. Action by Consent 4
5. Proxies 4
Article V Trustees Meetings 5
1. Number and Qualifications of Trustees 5
2. Special Meetings 5
3. Regular Meetings 5
4. Quorum and Vote 5
5. Notices 5
6. Place of Meeting 5
7. Telephonic Meeting 6
8. Special Action 6
9. Action by Consent 6
10. Compensation of Trustees 6
Article VI Shares
of Beneficial Interest 6
1. Beneficial Interest 6
2. Certificates 6
3. Transfer of Shares 7
4. Equitable Interest not Recognized 7
5. Lost, Destroyed or Mutilated Certificates 7
6. Transfer Agent and Registrar: Regulations
7
Article VII
Inspection of Books 7
Article VIII
Agreements, Checks, Drafts, Endorsements, Etc. 7
1. Agreements, Etc. 7
2. Checks, Drafts, Etc. 8
3. Endorsements, Assignments and Transfer of
Securities 8
4. Evidence of Authority 8
Article IX Seal
8
Article X Fiscal Year 8
Article XI
Amendments 8
Article XII Waivers
of Notice 8
Article XIII Report
to Shareholders 9
Article XIV Books
and Records 9
BY-LAWS
of
FEDERATED U.S. GOVERNMENT FUND
ARTICLE I
OFFICERS AND THEIR ELECTION
Section 1. Officers. The officers of the Trust shall be
a Chairman of the Trustees, a President, one or more Vice
Presidents, a Treasurer, a Secretary and such other officers as
the Trustees may from time to time elect. It shall not be
necessary for any Trustee or other officer to be a holder of
shares in the Trust.
Section 2. Election of Officers. The President, Vice
President(s), Treasurer and Secretary shall be chosen annually by
the Trustees. The Chairman of the Trustees shall be chosen
annually by and from the Trustees.
Two or more offices may be held by a single person
except the offices of President and Secretary. The officers
shall hold office until their successors are chosen and
qualified.
Section 3. Resignations and Removals and Vacancies. Any
officer of the Trust may resign by filing a written resignation
with the Chairman of the Trustees or with the Trustees or with
the Secretary, which shall take effect on being so filed or at
such time as may be therein specified. The Trustees may remove
any officer, with or without cause, by a majority vote of all of
the Trustees. The Trustees may fill any vacancy created in any
office whether by resignation, removal or otherwise.
ARTICLE II
POWERS AND DUTIES OF TRUSTEES AND OFFICERS
Section 1. Trustees. The business and affairs of the
Trust shall be managed by the Trustees, and they shall have all
powers necessary and desirable to carry out that responsibility.
Section 2. Chairman of the Trustees ("Chairman"). The
Chairman shall be the chief executive officer of the Trust. He
shall have general supervision over the business of the Trust and
policies of the Trust. He shall employ and define the duties of
all employees of the Trust, shall have power to discharge any
such employees, shall exercise general supervision over the
affairs of the Trust and shall perform such other duties as may
be assigned to him from time to time by the Trustees. He shall
preside at the meetings of shareholders and of the Trustees. The
Chairman shall appoint a Trustee or officer to preside at such
meetings in his absence.
Section 3. President. The President, in the absence of
the Chairman, shall perform all duties and may and may exercise
any of the powers of the Chairman subject to the control of the
other Trustees. He shall counsel and advise the Chairman on
matters of major importance and shall perform such other duties
as may be assigned to him from time to time by the Trustees, the
Chairman or the Executive Committee.
Section 4. Vice President. The Vice President (or if
more than one, the senior Vice President) in the absence of the
President shall perform all duties and may exercise any of the
powers of the President subject to the control of the Trustees.
Each Vice President shall perform such other duties as may be
assigned to him from time to time by the Trustees, the Chairman
or the Executive Committee.
Section 5. Secretary. The Secretary shall keep or cause
to be kept in books provided for the purpose the Minutes of the
Meetings of Shareholders and of the Trustees; shall see that all
Notices are duly given in accordance with the provisions of these
By-Laws and as required by law; shall be custodian of the records
and of the Seal of the Trust and see that the Seal is affixed to
all documents, the execution of which on behalf of the Trust
under its Seal is duly authorized; shall keep directly or through
a transfer agent a register of the post office address of each
shareholder, and make all proper changes in such register,
retaining and filing his authority for such entries; shall see
that the books, reports, statements, certificates and all other
documents and records required by law are properly kept and
filed; and in general shall perform all duties incident to the
Office of Secretary and such other duties as may from time to
time be assigned to him by the Trustees, Chairman or the
Executive Committee.
Section 6. Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He
shall deliver all funds and securities of the Trust which may
come into his hands to such bank or trust company as the Trustees
shall employ as custodian or sub-custodian in accordance with
Article IX of the Declaration of Trust. The Treasurer shall
perform such duties additional to the foregoing as the Trustees,
Chairman or the Executive Committee may from time to time
designate.
Section 7. Assistant Vice President. The Assistant Vice
or Vice Presidents of the Trust shall have such authority and
perform such duties as may be assigned to them by the Trustees,
the Executive Committee or the Chairman.
Section 8. Assistant Secretaries and Assistant
Treasurers. The Assistant Secretary or Secretaries and the
Assistant Treasurer or Treasurers shall perform the duties of the
Secretary and of the Treasurer, respectively, in the absence of
those Officers and shall have such further powers and perform
such other duties as may be assigned to them respectively by the
Trustees or the Executive Committee or the Chairman.
Section 9. Salaries. The salaries of the Officers shall be
fixed from time to time by the Trustees. No officer shall be
prevented from receiving such salary by reason of the fact that
he is also a Trustee.
ARTICLE III
POWERS AND DUTIES OF THE
EXECUTIVE AND OTHER COMMITTEES
Section 1. Executive and Other Committees. The Trustees
may elect from their own number an executive committee to consist
of not less than two members. The executive committee shall be
elected by a resolution passed by a vote of at least a majority
of the Trustees then in office. The Trustees may also elect from
their own number other committees from time to time, the number
composing such committees and the powers conferred upon the same
to be determined by vote of the Trustees.
Section 2. Vacancies in Executive Committee. Vacancies
occurring in the Executive Committee from any cause shall be
filled by the Trustees by a resolution passed by the vote of at
least a majority of the Trustees then in office.
Section 3. Executive Committee to Report to Trustees. All
action by the Executive Committee shall be reported to the
Trustees at their meeting next succeeding such action.
Section 4. Procedure of Executive Committee. The Executive
Committee shall fix its own rules of procedure not inconsistent
with these By-Laws or with any directions of the Trustees. It
shall meet at such times and places and upon such notice as shall
be provided by such rules or by resolution of the Trustees. The
presence of a majority shall constitute a quorum for the
transaction of business, and in every case an affirmative vote of
a majority of all the members of the Committee present shall be
necessary for the taking of any action.
Section 5. Powers of Executive Committee. During the
intervals between the Meetings of the Trustees, the Executive
Committee, except as limited by the By-Laws of the Trust or by
specific directions of the Trustees, shall possess and may
exercise all the powers of the Trustees in the management and
direction of the business and conduct of the affairs of the Trust
in such manner as the Executive Committee shall deem for the best
interests of the Trust, and shall have power to authorize the
Seal of the Trust to be affixed to all instruments and documents
requiring same. Notwithstanding the foregoing, the Executive
Committee shall not have the power to elect Trustees, increase or
decrease the number of Trustees, elect or remove any Officer,
declare dividends, issue shares or recommend to shareholders any
action requiring shareholder approval.
Section 6. Compensation. The members of any duly appointed
committee shall receive such compensation and/or fees as from
time to time may be fixed by the Trustees.
Section 7. Informal Action by Executive Committee or Other
Committee. Any action required or permitted to be taken at any
meeting of the Executive Committee or any other duly appointed
committee may be taken without a meeting if a consent in writing
setting forth such action is signed by all members of such
committee and such consent is filed with the records of the
Trust.
ARTICLE IV
SHAREHOLDERS' MEETINGS
Section 1. Special Meetings. A special meeting of the
shareholders shall be called by the Secretary whenever ordered by
the Trustees, the Chairman or requested in writing by the holder
or holders of at least one-tenth of the outstanding shares
entitled to vote. If the Secretary, when so ordered or
requested, refuses or neglects for more than two days to call
such special meeting, the Trustees, Chairman or the shareholders
so requesting may, in the name of the Secretary, call the meeting
by giving notice thereof in the manner required when notice is
given by the Secretary.
Section 2. Notices. Except as above provided, notices of
any special meeting of the shareholders shall be given by the
Secretary by delivering or mailing, postage prepaid, to each
shareholder entitled to vote at said meeting, a written or
printed notification of such meeting, at least fifteen days
before the meeting, to such address as may be registered with the
Trust by the shareholder.
Section 3. Place of Meeting. Meetings of the Shareholders
shall be held at the principal place of business of the Trust in
Pittsburgh, Pennsylvania, or at such place within or without the
Commonwealth of Massachusetts as fixed from time to time by
resolution of the Trustees.
Section 4. Action by Consent. Any action required or
permitted to be taken at any meeting of shareholders may be taken
without a meeting, if a consent in writing, setting forth such
action, is signed by all the shareholders entitled to vote on the
subject matter thereof, and such consent if filed with the
records of the Trust.
Section 5. Proxies. Any shareholder entitled to vote at
any meeting of shareholders may vote either in person or by
proxy. Every proxy shall be in writing subscribed by the
shareholder or his duly authorized attorney and dated, but need
not be sealed, witnessed or acknowledged. All proxies shall be
filed with and verified by the Secretary or an Assistant
Secretary of the Trust or, if the meeting shall so decide, by the
Secretary of the Meeting.
ARTICLE V
TRUSTEES' MEETINGS
Section 1. Number and Qualifications of Trustees. The
number of Trustees shall be as fixed from time to time by a
majority of the Trustees but shall be no less than three nor more
than twenty, however, and fill the vacancies so created. The
term of office of a Trustee shall not be affected by any decrease
in the number of Trustees made by the Trustees pursuant to the
foregoing authorization.
Section 2. Special Meetings. Special meetings of the
Trustees shall be called by the Secretary at the written request
of the Chairman or any Trustee, and if the Secretary when so
requested refuses or fails for more than twenty-four hours to
call such meeting, the Chairman or such Trustee may in the name
of the Secretary call such meeting by giving due notice in the
manner required when notice is given by the Secretary.
Section 3. Regular Meetings. Regular meetings of the
Trustees may be held without call or notice at such places and at
such times as the Trustees may from time to time determine,
provided that any Trustee who is absent when such determination
is made shall be given notice of the determination.
Section 4. Quorum and Vote. A majority of the Trustees
shall constitute a quorum for the transaction of business. The
act of a majority of the Trustees present at any meeting at which
a quorum is present shall be the act of the Trustees unless a
greater proportion is required by the Declaration of Trust or
these By-Laws or applicable law. In the absence of a quorum, a
majority of the Trustees present may adjourn the meeting from
time to time until a quorum shall be present. Notice of any
adjourned meeting need not be given.
Section 5. Notices. Except as otherwise provided, notice
of any special meeting of the Trustees shall be given by the
Secretary to each Trustee, by mailing to him, postage prepaid,
addressed to him at his address as registered on the books of the
Trust or, if not so registered, at his last known address, a
written or printed notification of such meeting at least four
days before the meeting or by sending to him at least one day
before the meeting, by prepaid telegram, addressed to him at his
said registered address, if any, or if he has no such registered
address, at his last known address, notice of such meeting.
Subject to compliance with Section 15(c) of the Investment
Company Act of 1940, notice or waiver of notice need not specify
the purpose of any special meeting.
Section 6. Place of Meeting. Meetings of the Trustees
shall be held at the principal place of business of the Trust in
Pittsburgh, Pennsylvania, or at such place within or without the
Commonwealth of Massachusetts as fixed from time to time by
resolution of the Trustees, or as the person or persons
requesting said meeting to be called by designate, but any
meeting may adjourn to any other place.
Section 7. Telephonic Meeting. Subject to compliance with
Sections 15(c) and 32(a) of the Investment Company Act of 1940,
if it is impractical for the Trustees to meet in person, the
Trustees may meet by means of a telephone conference circuit to
which all Trustees are connected or of which all Trustees shall
have waived notice, which meeting shall be deemed to have been
held at a place designated by the Trustees at the meeting.
Section 8. Special Action. When all the Trustees shall be
present at any meeting, however called, or whenever held, or
shall assent to the holding of the meeting without notice, or
after the meeting shall sign a written assent thereto on the
record of such meeting, the acts of such meeting shall be valid
as if such meeting had been regularly held.
Section 9. Action by Consent. Any action by the Trustees
may be taken without a meeting if a written consent thereto is
signed by all the Trustees and filed with the records of the
Trustees' meetings. Such consent shall be treated as a vote of
the Trustees for all purposes.
Section 10. Compensation of Trustees. The Trustees may
receive a stated salary for their services as Trustees, and by
Resolution of Trustees a fixed fee and expenses of attendance may
be allowed for attendance at each Meeting. Nothing herein
contained shall be construed to preclude any Trustee from serving
the Trust in any other capacity, as an officer, agent or
otherwise, and receiving compensation therefor.
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 1. Beneficial Interest. The beneficial interest in
the Trust shall at all times be divided into an unlimited number
of shares without par value. The shares of beneficial interest
shall have one vote per share at any meeting of the shareholders
and a fractional vote for each fraction of a share.
Section 2. Certificates. All certificates for shares shall
be signed by the Chairman, President or any Vice President and by
the Treasurer or Secretary of any Assistant Treasurer or
Assistant Secretary and sealed with the seal of the Trust. The
signatures may be either manual or facsimile signatures and the
seal may be either facsimile or any other form of seal.
Certificates for shares for which the Trust has appointed an
independent Transfer Agent and Registrar shall not be valid
unless countersigned by such Transfer Agent and registered by
such Registrar. In case any officer who has signed any
certificate ceases to be an officer of the Trust before the
certificate is issued, the certificate may nevertheless be issued
by the Trust with the same effect as if the officer had not
ceased to be such officer as of the date of its issuance. Share
certificates shall be in such form not inconsistent with law or
the Declaration of Trust or these By-Laws as may be determined by
the Trustees.
Section 3. Transfer of Shares. The shares of the Trust
shall be transferable, so as to affect the rights of the Trust,
only by transfer recorded on the books of the Trust, in person or
by attorney.
Section 4. Equitable Interest not Recognized. The Trust
shall be entitled to treat the holder of record of any share or
shares as the absolute owner thereof and shall not be bound to
recognize any equitable or other claim or interest in such share
or shares on the part of any other person except as may be
otherwise expressly provided by law.
Section 5. Lost, Destroyed or Mutilated Certificates. In
case any certificate for shares is lost, mutilated or destroyed,
the Trustees may issue a new certificate in place thereof upon
indemnity to the Trust against loss and upon such other terms and
conditions as the Trustees may deem advisable.
Section 6. Transfer Agent and Registrar: Regulations. The
Trustees shall have power and authority to make all such rules
and regulations as they may deem expedient concerning the
issuance, transfer and registration of certificates for shares
and may appoint a Transfer Agent and/or Registrar of certificates
for shares, and may require all such share certificates to bear
the signature of such Transfer Agent and/or of such Registrar.
ARTICLE VII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and
to what extent, and at what times and places, and under what
conditions and regulations the accounts and books of the Trust or
any of them shall be open to the inspection of the shareholders;
and no shareholder shall have any right of inspecting any account
or book or document of the Trust except as conferred by laws or
authorized by the Trustees or by resolution of the shareholders.
ARTICLE VIII
AGREEMENTS, CHECKS, DRAFTS, ENDORSEMENTS, ETC.
Section 1. Agreements, Etc. The Trustees or the Executive
Committee may authorize any Officer or Officers, or Agent or
Agents of the Trust to enter into any Agreement or execute and
deliver any instrument in the name of and on behalf of the Trust,
and such authority may be general or confined to specific
instances; and, unless so authorized by the Trustees or by the
Executive Committee or by these By-Laws, no Officer, Agent or
Employee shall have any power or authority to bind the Trust by
any Agreement or engagement or to pledge its credit or to render
it liable pecuniarily for any purpose or to any amount.
Section 2. Checks, Drafts, Etc. All checks, drafts, or
orders for the payment of money, notes and other evidences of
indebtedness shall be signed by such Officer or Officers,
Employee or Employees, or Agent or Agents, as shall from time to
time be designated by the Trustees or the Executive Committee, or
as may be specified in or pursuant to the agreement between the
Trust and the Bank or Trust Company appointed as custodian,
pursuant to the provisions of the Declaration of Trust.
Section 3. Endorsements, Assignments and Transfer of
Securities. All endorsements, assignments, stock powers or other
instruments of transfer of securities standing in the name of the
Trust or its nominee or directions for the transfer of securities
belonging to the Trust shall be made by such Officer or Officers,
Employee or Employees, or Agent or Agent as may be authorized by
the Trustees or the Executive Committee.
Section 4. Evidence of Authority. Anyone dealing with the
Trust shall be fully justified in relying on a copy of a
resolution of the Trustees or of any committee thereof empowered
to act in the premises which is certified as true by the
Secretary or an Assistant Secretary under the seal of the Trust.
ARTICLE IX
SEAL
The seal of the Trust shall be circular in form, bearing the
inscription:
FEDERATED U.S. GOVERNMENT FUND - 1985 - MASSACHUSETTS
ARTICLE X
FISCAL YEAR
The fiscal year of the Trust shall be the period of twelve
months ending on the last day of August in each calendar year.
ARTICLE XI
AMENDMENTS
These By-Laws may be amended by a majority vote of all of
the Trustees.
ARTICLE XII
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given under
the provisions of any statute of the Commonwealth of
Massachusetts, or under the provisions of the Declaration of
Trust or these By-Laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent
thereto. A notice shall be deemed to have been given if
telegraphed, cabled, or sent by wireless when it has been
delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or sent
by wireless. Any notice shall be deemed to be given if mailed at
the time when the same shall be deposited in the mail.
ARTICLE XIII
REPORT TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the
shareholders a written financial report of the transactions of
the Trust, including financial statements which shall at least
annually be certified by independent public accountants.
ARTICLE XIV
BOOKS AND RECORDS
The books and records of the Trust, including the stock
ledger or ledgers, may be kept in or outside the Commonwealth of
Massachusetts as such office or agency of the Trust as may be
from time to time determined by the Trustees.
Exhibit 6(i) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit A
FEDERATED ARMs FUND
Institutional Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated April 24, 1992, between Federated ARMs
Fund and Federated Securities Corp., Federated ARMs Fund executes
and delivers this Exhibit on behalf of the separate Classes of
Shares thereof, first set forth in this Exhibit.
Witness the due execution hereof this 24th day of April, 1992.
ATTEST: FEDERATED ARMs FUND
/s/John G. McGonigle______ By:_/s/ Glen R.
Johnson____________
Secretary President
(SEAL)
ATTEST FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan_________ By:/s/ Richard B.
Fisher_____________
Secretary President
(SEAL)
