1933 Act File No. 33-41004
1940 Act File No. 811-6307
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. 6 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 6 X
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
X immediately upon filing pursuant to paragraph (b)
on April 30, 1994 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on April 15, 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
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 FORTRESS ADJUSTABLE
RATE U.S. GOVERNMENT FUND, INC. is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page Cover Page.
Item 2. Synopsis Summary of Fund Expenses.
Item 3. Condensed Financial
Information Financial Highlights; Performance
Information.
Item 4. General Description of
Registrant General Information; Fortress
Investment Program; Investment
Information; Investment Objective;
Investment Policies; Investment
Limitations.
Item 5. Management of the Fund Fund Information; Management of the
Fund; Distribution of Fund Shares;
Administration of the Fund.
Item 6. Capital Stock and Other
Securities Dividends and Distributions;
Shareholder Information; Voting
Rights; Tax Information; Federal
Income Tax; Pennsylvania Corporate
and Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered Net Asset Value; Investing in the
Fund; Share Purchases; Minimum
Investment Required; What Shares Cost;
Systematic Investment Program;
Exchange Privilege; Certificates and
Confirmations; Exchange Privilege.
Item 8. Redemption or Repurchase Redeeming Shares; Through a Financial
Institution; Directly by Mail;
Contingent Deferred Sales Charge;
Systematic Withdrawal Program;
Accounts with Low Balances.
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 Objectives and
Policies Investment Objective and Policies;
Investment Limitations.
Item 14. Management of the Fund Fund Management.
Item 15. Control Persons and Principal
Holders of Securities Fund Ownership.
Item 16. Investment Advisory and Other
Services Investment Advisory Services;
Administrative Services.
Item 17. Brokerage Allocation Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered Purchasing Shares; Determining Net
Asset Value; Redeeming Shares;
Exchange Privilege.
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.
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
PROSPECTUS
Fortress Adjustable Rate U.S. Government, Inc. (the "Fund") is an open-end,
diversified management investment company (a mutual fund) that seeks to provide
current income consistent with lower volatility of principal by investing
primarily in a professionally managed, diversified portfolio of adjustable and
floating rate mortgage securities which are issued or guaranteed 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 the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated April 30,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated April 30, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
FORTRESS INVESTMENT PROGRAM 3
- ------------------------------------------------------
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objective 4
Investment Policies 4
Acceptable Investments 5
Adjustable Rate Mortgage Securities
("ARMS") 5
Collateralized Mortgage Obligations
("CMOs") 6
Real Estate Mortgage Investment
Conduits ("REMICs") 7
Resets 7
Caps and Floors 7
Temporary Investments 8
Repurchase Agreements 8
Dollar Roll Transactions 8
Lending of Portfolio Securities 8
When-Issued and Delayed
Delivery Transactions 9
Portfolio Turnover 9
Investment Limitations 9
NET ASSET VALUE 9
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INVESTING IN THE FUND 9
- ------------------------------------------------------
Share Purchases 9
Through a Financial Institution 9
Directly By Mail 10
Directly By Wire 10
Minimum Investment Required 10
What Shares Cost 10
Systematic Investment Program 11
Exchange Privilege 11
Certificates and Confirmations 11
Dividends and Distributions 11
Retirement Plans 12
REDEEMING SHARES 12
- ------------------------------------------------------
Through a Financial Institution 12
Directly By Mail 12
Signatures 12
Receiving Payment 13
Contingent Deferred Sales Charge 13
Systematic Withdrawal Program 14
Accounts with Low Balances 14
FUND INFORMATION 15
- ------------------------------------------------------
Management of the Fund 15
Board of Directors 15
Investment Adviser 15
Advisory Fees 15
Adviser's Background 15
Other Payments to Financial
Institutions 15
Distribution of Fund Shares 16
Distribution and Shareholder Services
Plans 16
Administration of the Fund 17
Administrative Services 17
Custodian 17
Transfer Agent and Dividend
Disbursing Agent 17
Legal Counsel 17
Independent Auditors 17
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
Pennsylvania Corporate and
Personal Property Taxes 18
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 29
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)(1)............................ 1.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(2)...................................................... 0.59%
12b-1 Fee (after waiver)(3)........................................................... 0.02%
Total Other Expenses.................................................................. 0.41%
Shareholder Services Fee(4)............................................. 0.23%
Total Fund Operating Expenses(5)............................................ 1.02%
</TABLE>
(1) The contingent deferred sales charge assessed is 1.00% of the lesser of the
original purchase price or the net asset value of shares redeemed within four
years of their purchase date.
(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.60%.
(3) The maximum 12b-1 fee is 0.25%.
(4) The maximum shareholder services fee is 0.25%.
(5) The total Fund operating expenses would have been 1.26% absent the voluntary
waivers of a portion of the management fee and a portion of the 12b-1 fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUND," "REDEEMING SHARES," AND "FUND
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period................. $ 21 $ 44 $ 56 $ 125
You would pay the following expenses on the same
investment, assuming no redemption........................ $ 10 $ 32 $ 56 $ 125
</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.
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 29.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
------------------------------------
1994 1993 1992*
----- ----- ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $9.90 $9.98 $10.00
- -----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------
Net investment income 0.43 0.53 0.47
- -----------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.11) (0.08) (0.06)
- ----------------------------------------------------------- ----- ----- ------
Total from investment operations 0.32 0.45 0.41
- ----------------------------------------------------------- ----- ----- ------
LESS DISTRIBUTIONS
- -----------------------------------------------------------
Dividends to shareholders from net investment income (0.43) (0.53) (0.42)
- -----------------------------------------------------------
Distributions in excess of net investment income -- -- (0.01)(a)
- ----------------------------------------------------------- ----- ----- ------
Total distributions (0.43) (0.53) (0.43)
- ----------------------------------------------------------- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $9.79 $9.90 $ 9.98
- ----------------------------------------------------------- ----- ----- ------
TOTAL RETURN** 3.27% 4.58% 4.14%
- -----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------
Expenses 1.02% 1.01% 0.63%(b)
- -----------------------------------------------------------
Net investment income 4.38% 5.29% 6.79%(b)
- -----------------------------------------------------------
Expense waiver/reimbursement(c) 0.24% 0.01% 0.37%(b)
- -----------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------
Net assets, end of period (000 omitted) $798,213 $1,136,198 $965,289
- -----------------------------------------------------------
Portfolio turnover rate 40% 56% 22%
- -----------------------------------------------------------
</TABLE>
* Reflects operations for the period from July 25, 1991 (date of initial public
investment) to February 29, 1992. For the period from June 13, 1991 (start of
business), to July 24, 1991, net investment income for the Fund aggregating
$0.0562 per share ($562) was distributed to the Fund's investment adviser.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Distributions in excess of net investment income for the period ended
February 29, 1992, were the result of certain book and tax timing
differences. These distributions do not represent a return of capital for
federal income tax purposes.
(b) Computed on an annualized basis.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 5).
(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 dated February 28, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on March 20,
1991. The Fund is designed primarily for individuals seeking current income
consistent with lower volatility of principal through a professionally managed,
diversified portfolio of adjustable and floating rate mortgage securities which
are issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
Volatility of principal is a measure of the degree to which the Fund's net asset
value fluctuates. A fund that invests primarily in adjustable rate securities
would tend to have a lower degree of volatility in its net asset value than a
fund that invests primarily in fixed-rate securities. This is because the value
of adjustable rate securities does not fluctuate as much as the value of
fixed-rate securities when interest rates rise or fall. By investing primarily
in mortgage securities whose interest rates adjust periodically, the Fund will
attempt to maintain a net asset value that would be less volatile than that of a
fund which invested primarily in fixed-rate mortgage securities.
A minimum initial investment of $1,500 is required, except for an IRA account,
which requires a $50 minimum initial investment. The minimum subsequent
investment is $100, except for an IRA account, which requires a minimum
subsequent investment of $50.
Fund shares are sold and redeemed at net asset value. However, a contingent
deferred sales charge is imposed on shares, other than shares purchased through
reinvestment of dividends, which are redeemed within one to four years of their
purchase dates. Fund assets may be used in connection with the distribution of
Fund shares.
FORTRESS INVESTMENT PROGRAM
- --------------------------------------------------------------------------------
This Fund is a class of Fortress Shares ("Fortress Shares"). It is a member of a
family of funds ("Fortress Funds"), collectively known as the Fortress
Investment Program. The other funds in the Program are:
AMERICAN LEADERS FUND, INC. (FORTRESS SHARES ONLY), providing growth of
capital and income through high-quality stocks;
CALIFORNIA MUNICIPAL INCOME FUND (FORTRESS SHARES ONLY), providing current
income exempt from federal regular income tax and California personal
income taxes;
FORTRESS BOND FUND, providing current income primarily through high-quality
corporate debt;
FORTRESS MUNICIPAL INCOME FUND, providing a high level of current income
generally exempt from federal regular income tax by investing primarily in
a diversified portfolio of municipal bonds;
FORTRESS UTILITY FUND, providing high current income and moderate
appreciation primarily through equity and debt securities of utility
companies;
GOVERNMENT INCOME SECURITIES, INC., providing current income through
long-term U.S. government securities;
LIBERTY EQUITY INCOME FUND, INC. (FORTRESS SHARES ONLY), an equity fund
investing primarily in stocks which have a history of regular dividends;
LIMITED TERM FUND (FORTRESS SHARES ONLY), providing a high level of current
income consistent with minimum fluctuation in principal value;
LIMITED TERM MUNICIPAL FUND (FORTRESS SHARES ONLY), providing a high level
of current income which is exempt from federal regular income tax
consistent with the preservation of capital;
MONEY MARKET MANAGEMENT, INC., providing current income consistent with
stability of principal through high-quality money market instruments;
NEW YORK MUNICIPAL INCOME FUND (FORTRESS SHARES ONLY), providing current
income exempt from federal regular income tax, New York personal income
taxes, and New York City income taxes;
OHIO MUNICIPAL INCOME FUND (FORTRESS SHARES ONLY), providing current income
exempt from federal regular income tax and Ohio personal taxes;
STRATEGIC INCOME FUND (FORTRESS SHARES ONLY), providing high current income
through investing in domestic corporate debt obligations, U.S. government
securities, and foreign government and corporate debt obligations; and
WORLD UTILITY FUND (FORTRESS SHARES ONLY), providing total return by
investing primarily in securities issued by domestic and foreign companies
in the utilities industry.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus. Prospectuses for these funds are available
by writing to Federated Securities Corp.
The Fortress Investment Program provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to various investment vehicles, and by providing
the investment services of proven, professional investment advisers.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income with
volatility of principal which is lower than investment companies investing
primarily in fixed-rate mortgage securities. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund's assets will be managed so that the Fund is a permissible investment
for federal credit unions under the Federal Credit Union Act and rules and
regulations established by the National Credit Union Administration. To the
extent that any investment or investment practice under the Fund's
investment policies listed below are not permissible for federal credit unions,
the Fund shall refrain from purchasing such investment or engaging in such
practices. The Fund will notify shareholders 60 days before making any change to
this policy.
The investment policies described below cannot be changed without shareholder
approval.
ACCEPTABLE INVESTMENTS. The Fund pursues its investment objective by investing
primarily in adjustable and floating rate mortgage securities. Under normal
circumstances, 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 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 an interest 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 the
following:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of the following U.S. government
agencies or instrumentalities: Federal National Mortgage Association,
Banks for Cooperatives (including Central Bank for Cooperatives), Federal
Land Banks, Federal Intermediate Credit Banks, Tennessee Valley
Authority, Export-Import Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, The Student Loan Marketing
Association, or National Credit Union Administration.
The government securities in which the Fund may invest are backed in a variety
of ways by the U.S. government or its agencies or instrumentalities. Some of
these securities, such as Government National Mortgage Association
mortgage-backed securities, are backed by the full faith and credit of the U.S.
government. Other securities, such as obligations of the Federal National
Mortgage Association or Federal Home Loan Mortgage Corporation, are backed by
the credit of the agency or instrumentality issuing the obligations but not the
full faith and credit of the U.S. government.
The Fund will not invest in stripped mortgage securities.
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:
(1) 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;
(2) 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; and
(3) 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.
All CMOs purchased by the Fund are rated in the highest rating category by
a nationally recognized statistical rating organization.
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs-- most of the CMOs in which the Fund invests use the
same basic structure:
(1) Several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of
securities: The first three (A, B, and C bonds) pay interest at their
stated rates beginning with the issue date; the final class (Z bond)
typically receives any excess income from the underlying investments
after payments are made to the other classes
and receives no principal or interest payments until the shorter
maturity classes have been retired, but then receives all remaining
principal and interest payments.
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities.
(3) The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A bond).
When those securities are completely retired, all principal payments
are then directed to the next-shortest-maturity security (or B bond).
This process continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro-rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. One or more
of the classes are often adjustable rate, and it is in these that the Fund
primarily invests. The interest portion of these payments is distributed by
the Fund as income, and the capital portion is reinvested.
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 the assets of the entity must be in assets directly or
indirectly secured principally by real property.
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 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. The Fund may invest temporarily in cash and cash items
during times of unusual market conditions for defensive purposes and to maintain
liquidity. Cash items may include short-term obligations such as:
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements.
To the extent that investments in temporary investments are not for defensive
purposes, the Fund intends to limit its investment in these securities to 20% of
its total assets.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other securities to the Fund and agree at the
time of sale to repurchase them at a mutually agreed upon time and price.
To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any
sale of such securities.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayment risks, the Fund may engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA, and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage security to a financial institution, such
as a bank or broker/dealer, and simultaneously agrees to repurchase a
substantially similar (i.e., same type, coupon, and maturity) security from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from these investments, together with any additional
fee income received on the sale, will generate income for the Fund exceeding the
yield. When the Fund enters into a dollar roll transaction, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Fund's Board of Directors. The Fund 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. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
PORTFOLIO TURNOVER. The Fund may trade or dispose of portfolio securities as
considered necessary to meet its investment objective.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings;
- invest more than 10% of the value of its net assets in securities subject
to restrictions on resale under the Securities Act of 1933 except for
certain restricted securities which meet the criteria for liquidity as
established by the Directors;
- invest more than 10% of the value of its net assets in securities which
are not readily marketable or which are otherwise considered illiquid,
including repurchase agreements providing for settlement in more than
seven days after notice; 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 operating history,
including the operation of any predecessor. (This limitation does not
apply to issuers of CMOs or REMICs which are collateralized by securities
or mortgages issued or guaranteed as to prompt payment of principal and
interest by an agency of the U.S. government).
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and all other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange is open.
Shares of the Fund may be purchased through a financial institution (such as a
bank or an investment dealer) who has a sales agreement with the distributor,
Federated Securities Corp., or directly from Federated Securities Corp. either
by mail or wire. The Fund reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
to place an order to purchase shares of the Fund. Purchase orders through a
financial institution are considered received
when the Fund is notified of the purchase order. Purchase orders through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for shares to be purchased at that day's price.
Purchase orders through other financial institutions must be received by the
financial institution and transmitted to the Fund before 4:00 p.m. (Eastern
time) in order for shares to be purchased at that day's price. It is the
financial institution's responsibility to transmit orders promptly.
The financial institution which maintains investor accounts with the Fund must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Other Payments to Financial Institutions").
DIRECTLY BY MAIL. To purchase shares of the Fund by mail directly from
Federated Securities Corp.:
- complete and sign the new account application available from the Fund;
- enclose a check made payable to Fortress Adjustable Rate U.S. Government
Fund, Inc.; and
- send both to the Fund's transfer agent, Federated Services Company, c/o
State Street Bank and Trust Company, P.O. Box 8604, Boston, MA
02266-8604.
Purchases by mail are considered received after payment by check is converted,
upon instruction of the transfer agent, into federal funds. This is generally
the next business day after State Street Bank receives the check.
DIRECTLY BY WIRE. To purchase shares of the Fund directly from Federated
Securities Corp. by Federal Reserve wire, call the Fund. All information needed
will be taken over the telephone, and the order is considered received when the
Fund receives payment by wire.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500 unless the investment is in
an IRA account, which requires a minimum initial investment of $50. Subsequent
investments must be in amounts of at least $100, except for an IRA account,
which must be in amounts of at least $50.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. Unaffiliated institutions through whom shares are purchased may charge
fees for services provided which may be related to the ownership of Fund shares.
This prospectus should, therefore, be read together with any agreement between
the customer and institution with regard to services provided, the fees charged
for these services, and any restrictions and limitations imposed.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
Under certain circumstances described under "Redeeming Shares," shareholders may
be charged a contingent deferred sales charge by the distributor at the time
shares are redeemed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
monthly from the shareholder's checking account and invested in Fund shares at
the net asset value next determined after an order is received by the Fund. A
shareholder may apply for participation in this program through Federated
Securities Corp.
EXCHANGE PRIVILEGE
Fund shareholders may use the exchange privilege to invest in other Fortress
Funds and Federated Funds which are advised by subsidiaries or affiliates of
Federated Investors at net asset value. However, such exchanges may be subject
to a contingent deferred sales charge and possibly a sales charge. This
privilege is available to shareholders resident in any state in which the fund
shares being acquired may be sold.
Shareholders in existing Fortress Funds may exchange their fund shares for
shares of the Fund at net asset value without a sales charge or a contingent
deferred sales charge. Shareholders using this privilege must exchange shares
having a net asset value of at least $1,500.
Shares in certain Federated Funds which are advised by subsidiaries or
affiliates of Federated Investors may also be exchanged for Fund shares at net
asset value.
Further information on the exchange privilege and prospectuses for other
Fortress Funds and Federated Funds are available by calling Federated Securities
Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the 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 AND DISTRIBUTIONS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Distributions of any net realized long-term capital gains
will be made at least once every twelve months. Unless shareholders request cash
payments on the application or by writing to Federated Securities Corp.,
dividends and distributions are automatically reinvested in additional shares of
the Fund on payment dates at the ex-dividend date net asset value.
RETIREMENT PLANS
Shares of the Fund can be purchased as an investment for retirement plans or for
IRA accounts. For further details, including prototype retirement plans, contact
Federated Securities Corp. and consult a tax adviser.
REDEEMING 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 through a financial institution or directly from the
Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value next determined after the Fund receives the
redemption request from the financial institution. Redemption requests through a
registered broker/dealer must be received by the broker before 4:00 p.m.
(Eastern time) and must be transmitted by the broker to the Fund before 5:00
p.m. (Eastern time) in order for shares to be redeemed at that day's net asset
value. Redemption requests through other financial institutions must be received
by the financial institution and transmitted to the Fund before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.
The financial institution is responsible for promptly submitting redemption
requests and providing proper written redemption instructions to the Fund. The
financial institution may charge customary fees and commissions for this
service.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming through his financial institution. If such a case should
occur, another method of redemption, such as "Directly by Mail," should be
considered.
DIRECTLY BY MAIL
Shareholders may also redeem shares by sending a written request to Federated
Services Company, c/o State Street Bank and Trust Company, P.O. Box 8604,
Boston, MA 02266-8604. This written request must include the shareholder's name,
the Fund name, the Fund account number, and the share or dollar amount to be
redeemed. Shares will be redeemed at their net asset value next determined after
State Street Bank receives the redemption request.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders may call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
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 may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. A check for the proceeds is mailed within seven days after
receipt of proper written redemption instructions from a broker or from the
shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders redeeming shares from their Fund accounts within certain time
periods of the purchase date of those shares will be charged a contingent
deferred sales charge by the Fund's distributor of the lesser of the original
price or the net asset value of the shares redeemed as follows:
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
AMOUNT OF PURCHASE SHARES HELD SALES CHARGE
------------------------ ------------------------ ---------------
<S> <C> <C>
Up to $1,999,999 less than 4 years 1%
$2,000,000 to $4,999,999 less than 2 years .50%
$5,000,000 to
$24,999,999 less than 1 year .25%
$25,000,000 or more N/A None
</TABLE>
In instances in which Fund shares have been acquired in exchange for shares in
other Fortress Funds, (i) the purchase price is the price of the shares when
originally purchased and (ii) the time period during which the shares are held
will run from the date of the original purchase. The contingent deferred sales
charge will not be imposed on shares acquired through: (i) the reinvestment of
dividends or distributions of long-term capital gains; or (ii) the exchange of
shares of Government Income Securities, Inc., where those shares were purchased
during that fund's Charter Offering Period. In computing the amount of
contingent deferred sales charge for accounts with shares subject to a single
holding period, if any, redemptions are deemed to have occurred in the following
order: (1) shares acquired through the reinvestment of dividends and long-term
capital gains; (2) purchases of shares occurring prior to the number of years
necessary to satisfy the applicable holding period; and (3) purchases of shares
occurring within the current holding period. For accounts with shares subject to
multiple share holding periods, the redemption sequence will be determined
first, with reinvested dividends and long-term capital gains, and second, on a
first-in, first-out basis.
The contingent deferred sales charge will not be imposed when a redemption
results from a return under the following circumstances: (i) a total or partial
distribution from a qualified plan, other than an
IRA, Keogh Plan, or a custodial account, following retirement; (ii) a total or
partial distribution from an IRA, Keogh Plan, or a custodial account after the
beneficial owner attains age 59 1/2; or (iii) from the death or total and
permanent disability of the beneficial owner. The exemption from the contingent
deferred sales charge for qualified plans, an IRA, Keogh Plan, or a custodial
account does not extend to account transfers, rollovers, and other redemptions
made for purposes of reinvestment. Contingent deferred sales charges are not
charged in connection with exchanges of shares for shares in other Fortress
Funds or in connection with redemptions by the Fund of accounts with low
balances. Shares of the Fund originally purchased through a bank trust
department or investment adviser registered under the Investment Advisers Act of
1940 are not subject to the contingent deferred sales charge. In addition,
shares held in the Fund by a financial institution for its own account which
were originally purchased by the financial institution directly from the Fund's
distributor without a sales charge may be redeemed without a contingent deferred
sales charge. For more information, see "Other Payments to Financial
Institutions."
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Fund shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder. Depending upon the amount of
the withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Fund shares, and the fluctuation of the net asset
value of Fund shares redeemed under this program, redemptions may reduce, and
eventually use up, the shareholder's investment in the Fund. For this reason,
payments under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have invested at least $10,000 in the Fund (at
current offering price). A shareholder may apply for participation in this
program through Federated Securities Corp.
Contingent deferred sales charges are charged for shares redeemed through this
program within four years of their purchase dates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$1,000. This requirement does not apply, however, if the balance falls below
$1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
FUND INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE FUND
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Fund's business affairs and for exercising all
the Fund's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser, subject to direction by the Directors.
The adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .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. The adviser can terminate this voluntary
waiver of some or all of its advisory fee at any time at its sole
discretion. The adviser has also undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the Trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
Gary J. Madich has been the Fund's portfolio manager since July of 1991.
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.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
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.
Federated Securities Corp. will pay financial institutions an amount equal to 1%
of the offering price of the shares acquired by their clients or customers
(except for participants in the Liberty Family Retirement Program) on purchases
up to $1,999,999, .50% of the offering price on purchases of $2,000,000 to
$4,999,999, and .25% of the offering price on purchases of $5,000,000 to
$24,999,999. For purchases of $25,000,000 or more, the distributor will pay
financial institutions 0.125% of the offering price of shares purchased still
outstanding six months after the transaction and 0.125% of the offering price of
shares purchased still outstanding one year after the transaction. A financial
institution may elect to receive amounts less than those stated which would
reduce the stated contingent deferred sales charge and/or the holding period
used to calculate the fee. Financial institutions may elect to waive the initial
payment described above; such waiver will result in the waiver by the Fund of
the otherwise applicable contingent deferred sales charge.
DISTRIBUTION OF FUND 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
0.25 of 1% of the average daily net asset value of the Fund 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 Fund 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 and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described in this
prospectus or should Congress relax current restrictions on depository
institutions, the distributor and adviser will consider appropriate changes in
the administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Fund") as specified below:
<TABLE>
<C> <S>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
- ------------------------ ------------------------------------
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 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, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund is entitled to one vote at all meetings of shareholders.
As of March 30, 1994, Merrill, Lynch, Pierce, Fenner & Smith, Jacksonville,
Florida, owned approximately 22,255,136 (29.72%) of the voting securities of the
Fund, and, therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by a majority vote of the shareholders at a special
meeting. A special meeting of shareholders shall be called by the Directors upon
the request of shareholders owning at least 10% of the Fund's outstanding
shares.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the shares. No federal income tax is due on any
distributions earned in an IRA or qualified retirement plan until distributed,
so long as such IRA or qualified retirement plan meets the applicable
requirements of the Internal Revenue Code.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- The Fund is subject to the Pennsylvania corporate franchise tax; and
- Fund shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the contingent deferred sales
charge, a non-recurring charge, which, if excluded, would increase the total
return and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------------------------------------------------------- --------------
<C> <S> <C>
GOVERNMENT OBLIGATIONS--95.3%
- -------------------------------------------------------------------------------
FEDERAL HOME LOAN MORTGAGE CORP. PC,
ADJUSTABLE RATE MORTGAGES--37.8%
---------------------------------------------------------------
$291,433,597 3.998%-5.841%, 12/1/99-4/1/2029 $ 301,999,491
--------------------------------------------------------------- --------------
</TABLE>
<TABLE>
<C> <S> <C>
FEDERAL HOME LOAN MORTGAGE CORP. REMIC--1.5%
---------------------------------------------------------------
5,000,000 4.875%, Series 1608-B, 11/15/2007 4,963,850
---------------------------------------------------------------
1,149,004 4.138%, Series 5-B, 5/15/2019 1,150,796
---------------------------------------------------------------
5,654,394 4.088%, Series 1095-D, 6/15/2021 5,671,922
--------------------------------------------------------------- --------------
Total 11,786,568
--------------------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--1.6%
---------------------------------------------------------------
10,955,485 11.500%-12.250%, 12/1/2010-2/1/2020 12,444,276
--------------------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION,
ADJUSTABLE RATE MORTGAGES--42.4%
---------------------------------------------------------------
328,075,291 3.690%-6.967%, 12/25/99-9/1/2029 338,691,749
--------------------------------------------------------------- --------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION REMIC--2.7%
---------------------------------------------------------------
6,900,000 4.750%, Series 93-189PB, 5/25/2007 6,804,021
---------------------------------------------------------------
7,315,463 4.423%, Series 90-145A, 12/25/2020 7,324,607
---------------------------------------------------------------
7,766,147 4.038%, Series G92-16F, 3/25/2022 7,764,594
--------------------------------------------------------------- --------------
Total 21,893,222
--------------------------------------------------------------- --------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION--3.1%
---------------------------------------------------------------
21,375,375 11.500%-12.000%, 11/15/2012-7/15/2019 24,798,035
--------------------------------------------------------------- --------------
</TABLE>
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------------------------------------------------------- --------------
<C> <S> <C>
GOVERNMENT OBLIGATIONS--CONTINUED
- -------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
ADJUSTABLE RATE MORTGAGES--6.2%
---------------------------------------------------------------
$ 47,781,662 4.875%-5.625%, 7/20/2021-9/20/2022 $ 49,528,038
--------------------------------------------------------------- --------------
TOTAL GOVERNMENT OBLIGATIONS (IDENTIFIED COST, $761,467,209) 761,141,379
--------------------------------------------------------------- --------------
*REPURCHASE AGREEMENT--3.8%
- -------------------------------------------------------------------------------
30,530,000 J.P. Morgan Securities Inc., 3.49%, dated 2/28/94, due 3/7/94
(at amortized cost) (Note 2B) 30,530,000
--------------------------------------------------------------- --------------
TOTAL INVESTMENTS (IDENTIFIED COST, $791,997,209) $ 791,671,379+
--------------------------------------------------------------- --------------
</TABLE>
* The repurchase agreement is 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 agreement is through participation in a joint
account with other Federated Funds.
+ The cost of investments for federal tax purposes amounts to $791,997,209. The
net unrealized depreciation on a federal tax basis amounts to $325,830 which
is comprised of $4,106,512 appreciation and $4,432,342 depreciation at
February 28, 1994.
PC--Participation Certificates
REMIC--Real Estate Mortgage Investment Conduit
Note: The categories of investments are shown as a percentage of net assets
($798,213,279) at February 28, 1994.
(See Notes which are an integral part of the Financial Statements)
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total investments at value (Notes 2A & 2B) (identified and tax cost
$791,997,209) $791,671,379
- --------------------------------------------------------------------------------
Cash 29,219
- --------------------------------------------------------------------------------
Interest receivable 10,667,818
- --------------------------------------------------------------------------------
Receivable for capital stock sold 2,033,498
- --------------------------------------------------------------------------------
Deferred expenses (Note 2H) 283,005
- -------------------------------------------------------------------------------- ------------
Total assets 804,684,919
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for capital stock repurchased $2,630,013
- -------------------------------------------------------------------
Payable for investments purchased 2,069,958
- -------------------------------------------------------------------
Dividends payable 1,325,988
- -------------------------------------------------------------------
Accrued expenses and other liabilities 445,681
- ------------------------------------------------------------------- ----------
Total liabilities 6,471,640
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 81,534,652 shares of capital stock outstanding $798,213,279
- -------------------------------------------------------------------------------- ------------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------------
Paid-in capital $820,107,595
- --------------------------------------------------------------------------------
Unrealized depreciation of investments (325,830)
- --------------------------------------------------------------------------------
Accumulated net realized loss on investments (21,456,235)
- --------------------------------------------------------------------------------
Accumulated distribution in excess of net investment income (112,251)
- -------------------------------------------------------------------------------- ------------
Total $798,213,279
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE AND OFFERING PRICE Per Share
($798,213,279 / 81,534,652 shares of capital stock outstanding) $9.79
- -------------------------------------------------------------------------------- ------------
Computation of Proceeds on Redemption:
Redemption Price Per Share (99/100 of $9.79)* $9.69
- -------------------------------------------------------------------------------- ------------
</TABLE>
* Under certain conditions, the contingent deferred sales charge of 1% is not
imposed. See "Contingent Deferred Sales Charge" on page 13 of the Fund's
prospectus.
(See Notes which are an integral part of the Financial Statements)
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------
Interest income (Notes 2C) $ 51,957,977
- ---------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------
Investment advisory fee (Note 5) $ 5,767,213
- ------------------------------------------------------------------------
Directors' fees 25,644
- ------------------------------------------------------------------------
Distribution services fee (Note 5) 2,403,005
- ------------------------------------------------------------------------
Shareholder service fee (Note 5) 2,210,765
- ------------------------------------------------------------------------
Administrative personnel and services fees (Note 5) 765,738
- ------------------------------------------------------------------------
Custodian and recordkeeping fees and expenses 269,699
- ------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 316,226
- ------------------------------------------------------------------------
Capital stock registration costs 139,687
- ------------------------------------------------------------------------
Auditing fees 15,522
- ------------------------------------------------------------------------
Legal fees 17,719
- ------------------------------------------------------------------------
Printing and postage 32,269
- ------------------------------------------------------------------------
Taxes 167,141
- ------------------------------------------------------------------------
Insurance premiums 22,117
- ------------------------------------------------------------------------
Miscellaneous 21,636
- ------------------------------------------------------------------------ -----------
Total expenses 12,174,381
- ------------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------------------
Waiver of investment advisory fee (Note 5) $ 117,096
- -----------------------------------------------------------
Waiver of distribution services fee (Note 5) 2,210,765 2,327,861
- ----------------------------------------------------------- ---------- -----------
Net expenses 9,846,520
- --------------------------------------------------------------------------------------- ------------
Net investment income 42,111,457
- --------------------------------------------------------------------------------------- ------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
- ---------------------------------------------------------------------------------------
Net realized loss on investments (identified cost basis) (12,060,236)
- ---------------------------------------------------------------------------------------
Net change in unrealized depreciation of investments 1,386,612
- --------------------------------------------------------------------------------------- ------------
Net realized and unrealized loss on investments (10,673,624)
- --------------------------------------------------------------------------------------- ------------
Change in net assets resulting from operations $ 31,437,833
- --------------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 42,111,457 $ 60,531,647
- --------------------------------------------------------------
Net realized loss on investment transactions ($12,916,149 net
loss and $6,101,688 net loss, respectively, as computed for
federal tax purposes) (12,060,236) (8,543,469)
- --------------------------------------------------------------
Change in unrealized depreciation of investments 1,386,612 (1,668,860)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from operations 31,437,833 50,319,318
- -------------------------------------------------------------- -------------- --------------
NET EQUALIZATION (DEBITS) CREDITS (NOTE 2E) (584,335) (381,015)
- -------------------------------------------------------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income (41,092,219) (59,571,076)
- -------------------------------------------------------------- -------------- --------------
CAPITAL STOCK TRANSACTIONS
(EXCLUSIVE OF AMOUNTS ALLOCATED TO NET INVESTMENT INCOME)
(NOTE 4)--
- --------------------------------------------------------------
Proceeds from sales of shares 392,365,761 1,020,152,506
- --------------------------------------------------------------
Net asset value of shares issued to shareholders electing to
receive payment of dividends in capital stock 19,232,330 24,164,451
- --------------------------------------------------------------
Cost of shares redeemed (739,344,309) (863,774,594)
- -------------------------------------------------------------- -------------- --------------
Change in net assets resulting from capital stock
transactions (327,746,218) 180,542,363
- -------------------------------------------------------------- -------------- --------------
Change in net assets (337,984,939) 170,909,590
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 1,136,198,218 965,288,628
- -------------------------------------------------------------- -------------- --------------
End of period $ 798,213,279 $1,136,198,218
- -------------------------------------------------------------- -------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fortress Adjustable Rate U.S. Government Fund, Inc., (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund was incorporated under the laws of the
State of Maryland on March 20, 1991.
(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. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--U.S. government obligations are valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent pricing service.
U.S. government obligations maturing in sixty days or less are valued 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 securities to ensure the existence of a proper level of
collateral.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Directors. 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. INCOME--Interest income is recorded on the accrual basis. Interest income includes
interest and discount earned (net of premium) on short-term obligations, and interest
earned on all other debt securities including original issue discount as required by the
Internal Revenue Code.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Internal
Revenue Code (the "Code") applicable to investment companies and to distribute to
shareholders each year all of its taxable income, including any net realized gain on
investments. Accordingly, no provision for federal income or excise taxes is necessary.
At February 28, 1994, the Fund for federal tax purposes, had a capital loss carryover of
$19,153,407 which will reduce the Fund's taxable income arising from future net realized
gain on investments, if any, to the extent permitted by the Code, and thus will reduce
the amount of the distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal
</TABLE>
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
tax. Pursuant to the Code, such capital loss carryforward will expire in 2000
($135,570), 2001 ($6,101,688) and 2002 ($12,916,149). Additionally, net capital losses
of $2,302,827 attributable to security transactions incurred after October 31, 1993 are
treated as arising on the first day of the Fund's next taxable year.
E. EQUALIZATION--The Fund follows the accounting practice known as equalization, by which a
portion of the proceeds from sales and costs of redemptions of Fund shares equivalent,
on a per share basis, to the amount of undistributed net investment income on the date
of the transaction, is credited or charged to undistributed net investment income. As a
result, undistributed net investment income per share is unaffected by sales or
redemptions of Fund shares.
F. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. To the extent the Fund engages in such transactions, it
will do so for the purpose of acquiring portfolio securities consistent with its
investment objective and policies and not for the purpose of investment leverage. The
Fund will record a when-issued security and the related liability on the trade date.
Until the securities are received and paid for, the Fund will maintain 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.
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 sells mortgage
securities to financial institutions and simultaneously agrees to repurchase
substantially similar (same type, coupon and maturity) securities at a later date at an
agreed upon price. During the period between the sale and repurchase, the Fund foregoes
principal and interest paid on the mortgage securities sold. The Fund is compensated by
the interest earned on the cash proceeds of the initial sale and any additional fee
income received on the sale.
H. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the
shares, have been deferred and are being amortized using the straight-line method
through May, 1996.
I. OTHER--Investment transactions are accounted for on the date of the transaction.
</TABLE>
(3) DIVIDENDS
Dividends are declared and paid monthly to all shareholders invested in the Fund
on the record date. Dividends are paid from the net investment income of the
Fund. Net investment income consists of all dividends or interest received by
the Fund less its expenses. Distributions of any net realized long-term capital
gains will be made at least once every twelve months.
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
- --------------------------------------------------------------------------------
(4) CAPITAL STOCK
At February 28, 1994, there were 5,000,000,000 shares of $.001 par value stock
authorized. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
Shares outstanding, beginning of period 114,764,675 96,711,630
- -----------------------------------------------------------------
Shares sold 39,767,211 102,376,100
- -----------------------------------------------------------------
Shares issued to shareholders electing to receive payment of
dividends in capital stock 1,954,128 2,341,644
- -----------------------------------------------------------------
Shares redeemed (74,951,362) (86,754,699)
- ----------------------------------------------------------------- ----------- -----------
Shares outstanding, end of period 81,534,652 114,764,675
- ----------------------------------------------------------------- ----------- -----------
</TABLE>
(5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Advisers, the Fund's investment adviser ("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 has voluntarily agreed to waive a portion
of its fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the Investment Company Act of 1940. The Fund will pay Federated Securities
Corp. ("FSC"), the principal distributor, an amount computed at an annual rate
of .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.
Administrative personnel and services were provided at approximate cost by
Federated Administrative Services, Inc. Effective March 1, 1994, Federated
Administrative Services ("FAS") will provide administrative personnel and
services. The fee is based on the level of average aggregate net assets of the
total Federated Funds for the period. The administrative fee received during any
fiscal year shall be at least $125,000 per portfolio and $30,000 for each
additional class of shares.
The Fund has adopted a Shareholder Services Plan (the "Services Plan") with
respect to the Fund's shares. The Fund will reimburse Federated Securities
Corporation, ("FSC") from the net assets of the Fund for fees FSC paid which
relate to administrative support services of the Fund's shares. The Services
Plan provides that the Fund's shares may incur shareholder services expenses up
to 0.25 of 1% of the average daily net assets of the Fund's shares. Under the
terms of a shareholder service agreement with Federated Shareholder Services
("FSS"), which takes effect March 1, 1994, the Fund will pay FSS a fee to obtain
certain personal services for shareholders and the maintenance of shareholders
accounts. The fee is based on the level of average net assets for the period.
Certain Officers and Directors of the Fund are Officers and Directors of the
above corporations.
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
- --------------------------------------------------------------------------------
(6) INVESTMENT TRANSACTIONS
Purchases, and sales of investments, excluding short-term securities, for the
year ended February 28, 1994 were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
PURCHASES-- $374,535,102
- ------------------------------------------------------------------------------ ------------
SALES-- $533,981,545
- ------------------------------------------------------------------------------ ------------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Fortress Adjustable Rate U.S. Government Fund,
Inc. as of February 28, 1994, the related statement of operations for the year
then ended, the statement of changes in net assets for the years ended February
28, 1994 and 1993, and the financial highlights (see page 2 of the prospectus)
for each of the years in the three-year period ended February 28, 1994. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
February 28, 1994 by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Fortress Adjustable
Rate U.S. Government Fund, Inc. as of February 28, 1994, the results of its
operations, the changes in its net assets, and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE
Boston, Massachusetts
April 15, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fortress Adjustable Rate Federated Investors Tower
U.S. Government Fund, Inc. Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company 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 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ------------------------------------------------------------------------------------------------
</TABLE>
FORTRESS ADJUSTABLE
RATE U.S. GOVERNMENT
FUND, INC.
PROSPECTUS
An Open-End, Diversified
Management Investment Company
April 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
1071005A (4/94)
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Fortress Adjustable Rate U.S. Government Fund, Inc. (the "Fund"), dated April
30, 1994. This Statement is not a prospectus itself. To receive a copy of the
prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated April 30, 1994
FEDERATED SECURITIES CORP.
(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
Caps and Floors 1
When-Issued and Delayed
Delivery Transactions 1
Lending of Portfolio Securities 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Restricted Securities 2
Portfolio Turnover 2
INVESTMENT LIMITATIONS 2
- ---------------------------------------------------------------
FUND MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Directors 4
The Funds 6
Fund Ownership 6
Director Liability 6
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 7
- ---------------------------------------------------------------
PURCHASING SHARES 8
- ---------------------------------------------------------------
Distribution and Shareholder Services Plans 8
Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Determining Market Value of Securities 9
EXCHANGE PRIVILEGE 9
- ---------------------------------------------------------------
Requirements for Exchange 9
Tax Consequences 9
Making an Exchange 9
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 10
- ---------------------------------------------------------------
The Fund's Tax Status 10
Shareholders' Tax Status 10
TOTAL RETURN 10
- ---------------------------------------------------------------
YIELD 10
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 10
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund was incorporated under the laws of the State of Maryland on March 20,
1991. It is qualified to do business as a foreign corporation in Pennsylvania.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to provide current income with
volatility of principal which is lower than investment companies investing
primarily in fixed-rate mortgage securities. The investment objective and
policies of the Fund cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests primarily in adjustable and floating rate mortgage securities
which are issued or guaranteed by the U.S. government, its agencies and
instrumentalities. These securities 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 Land Banks;
- - Central Bank for Cooperatives;
- - Federal Intermediate Credit Banks;
- - Federal Home Loan Banks;
- - Farmers Home Administration; and
- - Federal National Mortgage Association.
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 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 arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. 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.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payments for the
securities to be purchased are segregated at the trade date. These securities
are marked to market daily and are maintained until the transaction is settled.
As a matter of policy, 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 their respective assets.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
- --------------------------------------------------------------------------------
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller files for bankruptcy or
became insolvent, disposition of securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Board of Directors.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. A reverse repurchase
transaction is similar to borrowing cash. In a reverse repurchase agreement the
Fund transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future, the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Fund to avoid selling portfolio instruments
at a time when a sale may be deemed to be disadvantageous, but the ability to
enter into reverse repurchase agreements does not ensure that the Fund will be
able to avoid selling portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
RESTRICTED SECURITIES
The ability of the Board of Directors to determine the liquidity of certain
restricted securities is permitted under an SEC Staff position set forth in the
adopting release for Rule 144A under the Securities Act of 1933 (the "Rule").
The Rule is a non-exclusive, safe-harbor for certain secondary market
transactions involving securities subject to restrictions on resale under
federal securities laws. The Rule provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional buyers.
The Rule was expected to further enhance the liquidity of the secondary market
for securities eligible for resale under Rule 144A. The Fund believes that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities (eligible for resale under Rule 144A) to the Fund's Board
of Directors. The Board of Directors considers the following criteria in
determining the liquidity of certain restricted securities:
- - the frequency of trades and quotes for the security;
- - the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
- - dealer undertakings to make a market in the security; and
- - the nature of the security and the nature of the marketplace trades.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. For the fiscal years ended February 28, 1994,
and 1993 the portfolio turnover rates were 40% and 56% respectively.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
BUYING ON MARGIN
The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for clearance of transactions.
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 total 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
borrowings in excess of 5% of its total assets are outstanding.
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 the securities of that issuer.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including limited partnership
interests in real estate, although it may invest in securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its net assets in securities
subject to restrictions on resale under the Securities Act of 1933 except
for certain restricted securities which meet the criteria for liquidity
as established by the Board of Directors.
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 restricted securities which the Fund may
purchase pursuant to 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. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable amount demand master notes, bonds, debentures,
notes, certificates of indebtedness, or other securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by a Fund's investment objective, policies and limitations.
SELLING SHORT
The Fund will not sell securities short unless:
- during the time the short position is open, it owns an equal amount of
the securities sold or securities readily and freely convertible into
or exchangeable, without payment of additional consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short; and
- not more than 10% of the Fund's net assets (taken at current value) is
held as collateral for such sales at any one time.
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
operating history, including the operation of any predecessor. (This
limitation does not apply to issuers of CMOs or REMICs which are
collateralized by securities or mortgages issued or guaranteed as to
prompt payment of principal and interest by an agency of the U.S.
government.)
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs or leases, although it may purchase the
securities of issuers which invest in or sponsor such programs.
- --------------------------------------------------------------------------------
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND DIRECTORS OF
THE FUND
The Fund will not purchase or retain the securities of any issuer if the
officers and Directors of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may not own securities of open-end investment companies. The
Fund can acquire up to 3 per centum of the total outstanding stock of
closed-end investment companies. The Fund will not be subject to any
other limitations with regard to the acquisition of securities of
closed-end investment companies so long as the public offering price of
the Fund's shares does not include a sales load exceeding 1 1/2 per cent.
The Fund will purchase securities of closed-end investment companies only
in open-market transactions involving only customary broker's
commissions. However, these limitations are not applicable if the
securities are acquired in a merger, consolidation, or acquisition of
assets.
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 does not expect to pledge securities or invest in stock of closed-end
investment companies during the coming year.
The Fund has not borrowed money or sold any securities short in an amount
exceeding 5% of the value of its net assets during the last fiscal year and has
no present intent to do so in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash item."
FUND MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Advisers,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue+* Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Director Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President of the Fund.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
John T. Conroy, Jr. Director President, Investment Properties Corporation; Senior Vice-President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General
Associates, Inc., Realtors Partner of the Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Director Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Pittsburgh, PA Homes, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Director Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President and Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Director Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Director Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President,
Boston, MA State Street Bank and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Director Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management
University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy and Technology.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Director,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Director of the Fund.
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer, and Director, Federated
Pittsburgh, PA Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Director, Federated Administrative Services; Trustee or Director of some
of the Funds; Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE FUND DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Trustee, Federated Services
Pittsburgh, PA Company; Executive Vice President, Secretary, and Director, Federated
Administrative Services; Director and Executive Vice President, Federated
Securities Corp.; Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President,
Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President of the Funds;
Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Director is deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940, as amended.
+ Member of the Fund's Executive Committee. The Executive Committee of the Board
of Directors handles the responsibilities of the Board of Directors between
meetings of the Board.
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; The Boulevard Funds; California Municipal Cash
Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First 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; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc; Liberty Municipal Securities Fund, Inc.; Liberty
Term Trust, Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal
Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The
Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds;
Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; and Trust for U.S. Treasury Obligations;
World Investment Series, Inc.
FUND OWNERSHIP
Officers and Directors own less than 1% of the Fund's outstanding shares.
As of March 30, 1994, the following shareholder of record owned 5% or more of
the outstanding shares of the Fund: Merrill, Lynch, Pierce, Fenner & Smith,
Jacksonville, Florida, owned approximately 22,255,136 (29.72%) shares of the
Fund.
DIRECTOR LIABILITY
The Fund's Articles of Incorporation provide that the Directors 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 Advisers. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue. John F. Donahue, Chairman and Trustee of Federated
Advisers, is Chairman and Trustee of Federated Investors, and Chairman and
Director of the Fund. John A. Staley, IV, President and Trustee of Federated
Advisers, is Vice President and Trustee of Federated Investors, Executive Vice
President of Federated Securities Corp., and Vice President of the Fund. J.
Christopher Donahue, Trustee of Federated Advisers, is President and Trustee of
Federated Investors, President and Director of Federated Administrative Services
Trustee, Federated Services Company; and Vice President of the Fund. John W.
McGonigle, Vice President, Secretary, and Trustee of Federated Advisers, is
Trustee, Vice President, Secretary, and General Counsel of Federated Investors;
Executive Vice President, Secretary, and Director of Federated Administrative
Services; Executive Vice President and Director of Federated Securities Corp.;
Trustee, Federated Services Company; and Vice President and Secretary of the
Fund.
The adviser shall not be liable to the Fund or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus.
For the fiscal years ended February 28, 1994, 1993, and for the period from July
25, 1991 (date of initial public investment), to February 29, 1992, the Fund's
adviser earned $5,767,213, $6,866,490 and $1,518,087, respectively, of which
$117,096 $155,350, and $926,826, respectively, were voluntarily waived.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
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 expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. For the fiscal years ended February 28, 1994, 1993, and for the
period from July 25, 1991 (date of initial public investment), to February 29,
1992, Federated Administrative Services, Inc., the Fund's former administrator,
earned $765,738, $744,906, and $202,705, respectively. John A. Staley, IV, an
officer of the Fund and Dr. Henry J. Gailliot, an officer of Federated Advisors,
the adviser to the Fund, each hold approximately 15% and 20%, respectively, of
the outstanding common stock and serve as directors of Commercial Data Services,
Inc., a company which provides computer processing services to Federated
Administrative Services, Inc., and Federated Administrative Services. For the
fiscal years ended February 28, 1994, 1993, and 1992, Federated Administrative
Services, Inc. paid approximately $159,222, $179,920, and $202,532,
respectively, for services provided by Commercial Data Services, Inc. to the
Funds.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Directors.
- --------------------------------------------------------------------------------
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Except under certain circumstances described in the prospectus, shares are sold
at their net asset value on days the New York Stock Exchange is open for
business. The procedure for purchasing shares of the Fund is explained in the
prospectus under "Investing in the Fund."
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS
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 and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries, and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Board of Directors 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; (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ending February 28, 1994, the Fund paid $2,403,005 of
which $2,210,765 was waived in distribution services fees. In addition, the Fund
paid $2,210,765 in shareholder services fees.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. State Street Bank acts as the shareholder's agent in depositing
checks and converting them to federal funds.
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. Net asset value will not
be calculated on Good Friday and on the following holidays: New Year's Day,
Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's securities are determined as follows:
- --------------------------------------------------------------------------------
- - as provided by an independent pricing service;
- - for short-term obligations, according to the mean between the bid and asked
prices, as furnished by an independent pricing service, or for short-term
obligations with remaining maturities of 60 days or less at the time of
purchase, at amortized cost unless the Board of Directors determines this is
not fair value; or
- - at fair value as determined in good faith by the Fund's Board of Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
- - yield;
- - quality;
- - coupon rate;
- - maturity;
- - type of issue;
- - trading characteristics; and
- - other market data.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders residing in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund.
Further information on the exchange privilege and prospectuses for Fortress
Funds or certain Federated Funds are available by calling the Fund.
TAX CONSEQUENCES
Exercise of this exchange privilege is treated as a sale for federal income tax
purposes. Depending upon the circumstances, a short or long-term capital gain or
loss may be realized.
MAKING AN EXCHANGE
Instructions for exchanges for Fortress Funds or certain Federated Funds must be
given in writing by the shareholder. Written instructions may require a
signature guarantee.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although the Fund does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
Certain shares redeemed within one to four years of purchase may be subject to a
contingent deferred sales charge. The amount of the contingent deferred sales
charge is based upon the amount of the administrative fee paid at the time of
purchase by the distributor to the financial institutions for services rendered,
and the length of time the investor remains a shareholder in the Fund. Should
financial institutions elect to receive an amount less than the administrative
fee that is stated in the prospectus for servicing a particular shareholder, the
contingent deferred sales charge and/or holding period for that particular
shareholder will be reduced accordingly.
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the Board
of Directors determine to be fair and equitable.
The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any shareholder
in cash up to the lesser of $250,000 or 1% of the Fund's net asset value during
any 90-day period.
- --------------------------------------------------------------------------------
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
the Fund shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The Fund's average annual total return for the one-year period ended February
28, 1994, and for the period between July 25, 1991 (date of initial public
investment), and February 28, 1994 was 2.22% and 4.21%, respectively.
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the 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.
Any applicable redemption fee is deducted from the ending value of the
investment based on the lesser of the original purchase price or the offering
price of shares redeemed.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for the thirty-day period ended February 28, 1994, was 3.07%.
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and, therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in Fund's expenses; and
- --------------------------------------------------------------------------------
- - various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LEHMAN BROTHERS 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 MUTUAL FUND SHORT (1-3) U.S. GOVERNMENT INDEX is an index
comprised of mutual funds which invest in short-term (1-3 year) government
securities.
- - 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 the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
From time to time, the Fund may advertise its performance, using charts, graphs,
and descriptions, compared to federally insured bank products including
certificates of deposit and time deposits and to money market funds using the
Lipper Analytical Services, Inc., money market instruments average.
Advertising and sales literature may show the Fund's net asset value history in
relation to certain political and economic events.
1071005B (4/94)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A)
(b) Exhibits:
(1) (i) Copy of Articles of Incorporation of
the Registrant (1);
(ii) Copy of amendment to Articles of Incorporation
of the Registrant (1);
(2) Copy of By-Laws of the Registrant (1);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Capital
Stock of the Registrant (2);
(5) Copy of Investment Advisory Contract of the Registrant
(1);
(6) (i) Copy of Distributor's Contract of
the Registrant (1);
(ii) Copy of Sales Agreement (1);
(7) Not applicable;
(8) Conformed copy of Custodian Agreement of the
Registrant; +
(9) (i) Conformed copy of Transfer Agency
and Service Agreement of the Registrant
(4);
(ii) Conformed copy of Shareholder Services Plan;+
(10) Copy of Opinion and Consent of Counsel as
to legality of shares being registered (2);
(11) Conformed copy of Consent of Independent
Public Accountants;+
(12) Not applicable;
(13) Copy of Initial Capital Understanding (2);
(14) Not applicable;
(15) (i) Copy of Rule 12b-1 Plan (1);
(ii) Copy of 12b-1 Agreement (1);
(16) Schedule for Computation of Fund
Performance Data (3);
(17) Power of Attorney (4);
(18) Conformed copy of Opinion and Consent of
Counsel as to Availability of Rule 485(b).+
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed June 5, 1991. (File Nos.
33-41004 and 811-6307).
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 filed July 18, 1991. (File Nos. 33-41004 and 811-6307)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 filed November 1, 1991. (File Nos. 33-41004 and
811-6307)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 4 filed April 26, 1993. (File Nos. 33-41004 and 811-6307)
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of March 30, 1994
Shares of common stock 10,477
($0.0001 per Share par value)
Item 27. Indemnification: (2)
Item 28. Business and Other Connections of Investment Adviser:
(a) For a description of the other business of the investment
adviser, see the section entitled "Fund Information -
Management of the Fund" in Part A. The affiliations with the
Registrant of four of the Trustees and four of the Officers
of the investment adviser are included in Part B of this
Registration Statement under "Fund Management - Officers and
Directors." The remaining Trustee of the investment adviser,
his position with the investment adviser, and, in
parentheses, his principal occupation is: Mark D. Olson,
(Partner, Wilson, Halbrook & Bayard) 107 W. Market Street,
Georgetown, Delaware 19947.
The remaining Officers of the investment adviser are: Mark
L. Mallon, William D. Dawson, III, and J. Thomas Madden,
Executive Vice Presidents; Henry J. Gailliot, Senior Vice
President-Economist; Peter R. Anderson, Gary J. Madich, and
J. Alan Minteer, Senior Vice Presidents; Randall A. Bauer,
Jonathan C. Conley, Deborah A. Cunningham, Mark Durbiano,
Roger A. Early, Kathleen M. Foody-Malus, David C. Francis,
Thomas M. Franks, Edward C. Gonzales, Jeff A. Kozemchak,
Marian R. Marinack, John W. McGonigle, Gregory M. Melvin,
Susan M. Nason, Mary Jo Ochson, Robert J. Ostrowski, Charles
A. Ritter, Christopher H. Wiles, Linda Ziglar, Vice
Presidents. 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) American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money
Trust; California Municipal Cash Trust; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated
Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government
Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated U.S. Government Bond Fund; First Priority Funds;
Fixed Income Securities, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insight Institutional Series,
Inc.; Insurance Management Series; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund,
Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed
Series Trust; Mark Twain Funds; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash
Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; Portage Funds; RIMCO Monument Funds; The Shawmut
Funds; Short-Term Municipal Trust; Signet Select Funds; Star
Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust;
Tax-Free Instruments Trust; Trademark Funds; Trust for
Financial Institutions; Trust For Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; 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, President
Federated Investors Tower CEO, COO, Asst. Secretary, and Director
Pittsburgh, PA 15222-3779 and Asst. Treasurer,
Federated Securities Corp.
Edward C. Gonzales Director, Executive Vice Vice President
Federated Investors Tower President, and Treasurer, and Treasurer
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President
Federated Investors Tower President, and Assistant and Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John A. Staley, IV Executive Vice President Vice President
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark R. Gensheimer Executive Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Theordore 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 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
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. Jeffery 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
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
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
Wililam 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 Secretary
Federated Investors Tower Securities Corp.
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 the
following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Federated Investors Tower
Services Pittsburgh, PA 15222-3779
("Administrator")
Federated Advisers Federated Investors Tower
("Adviser") Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 8604
Company Boston, MA 02266-8604
("Custodian")
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Directors and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, FORTRESS ADJUSTABLE RATE
U.S. GOVERNMENT FUND, INC., certifies that it meets all of the
requirements for effectiveness of this Amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and
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 21st
day of April, 1994.
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
April 21, 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/Charles H. Field
Charles H. Field Attorney In Fact April 21, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Director
(Chief Executive Officer)
Richard B. Fisher* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Director
William J. Copeland* Director
James E. Dowd* Director
Lawrence D. Ellis, M.D.* Director
Edward L. Flaherty, Jr.* Director
Peter E. Madden* Director
Gregor F. Meyer* Director
Wesley W. Posvar* Director
Marjorie P. Smuts* Director
* By Power of Attorney
Exhibit (11) under N-1A
Exhibit 23 under 601/Reg SK
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Post-Effective Amendment No. 6 to
Registration Statement (No. 33-41004) of Fortress Adjustable Rate U.S.
Government Fund, Inc. of our report dated April 15, 1994, appearing in the
Prospectus, which is a part of such Registration Statement, and to the
reference to us under the heading 'Financial Highlights" in such
Prospectus.
By: DELOITTE & TOUCHE
Deliotte & Touche
Certified Public Accountants
Boston, Massachusetts
April 21, 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. HOUSTON PITTSBURGH, 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
April 19, 1994
Fortress Adjustable Rate U.S. Government Fund, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to Fortress Adjustable Rate U.S. Government Fund,
Inc. ("Fund") we have reviewed Post-effective Amendment No. 6 to
the Fund's Registration Statement to be filed with the Securities
and Exchange Commission under the Securities Act of 1933 (File
No. 33-41004). The subject Post-effective Amendment will be
filed pursuant to Paragraph (b) of Rule 485 and become effective
pursuant to said Rule immediately upon filing.
Our review also included an examination of other relevant
portions of the amended 1933 Act Registration Statement of the
Fund and such other documents and records deemed appropriate. On
the basis of this review we are of the opinion that
Post-effective Amendment No. 6 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 Fund'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 8 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 set forth on Fee Schedules A ("A1, A2, A3 etc..."),
annexed hereto and incorporated herein, as may be added or
amended from time to time. 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 specified in Schedules B ("B1, B2, B3, etc..."),
annexed hereto and incorporated herein, as may be added or
amended from time to time. Schedules B may be modified by the
Company upon not less than thirty days' prior written notice to
the Trust.
B. The Fund and/or the Class, and not the Company, shall
bear the cost of: custodial expenses; membership dues in the
Investment Company Institute or any similar organization;
transfer agency expenses; investment advisory expenses; costs of
printing and mailing stock certificates, Prospectuses, reports
and notices; administrative expenses; interest on borrowed money;
brokerage commissions; taxes and fees payable to federal, state
and other governmental agencies; fees of Trustees or Directors of
the Trust; independent auditors expenses; Federated
Administrative Services and/or Federated Administrative Services,
Inc. legal and audit department expenses billed to Federated
Services Company for work performed related to the Trust, the
Funds, or the Classes; law firm expenses; or other expenses not
specified in this Article 3 which may be properly payable by the
Funds and/or classes.
C. The Company will send an invoice to each of the Funds as
soon as practicable after the end of each month. Each invoice
will provide detailed information about the compensation and out-
of-pocket expenses in accordance with Schedules A and Schedules
B. The Funds and or the Classes will pay to the Company the
amount of such invoice within 30 days of receipt of the invoices.
D. Any compensation agreed to hereunder may be adjusted from
time to time by attaching to Schedules A revised Schedules 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 set out in Schedules C ("C1, C2,
C3 etc..."), attached hereto, as may be added 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 fees set forth on
Schedule C 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 set out in Schedules D ("D1, D2, D3
etc..."), attached hereto, 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 Company shall send an invoice with respect to fees and
reimbursable expenses to the Trust or each of the Funds
as soon as practicable at the end of each month. Each
invoice will provide detailed information about the
Compensation and out-of-pocket expenses in accordance
with Schedules C and Schedules D. The Trust or the Funds
will pay to the Company the amount of such invoice within
30 days following the receipt of the invoices.
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 set forth in Schedule E, attached hereto.
B. Payment
The Company shall send an invoice with respect to fees and
reimbursable expenses to each of the Trust/or Fund as
soon as practicable at the end of each month. Each
invoice will provide detailed information about the
Compensation and out-of-pocket expenses in occurrence
with Schedule E. The Trust and/or Fund will pay to the
Company the amount of such invoice within 30 days
following the receipt of the invoice.
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
Schedule A
Fund Accounting
Fee Schedule
I. Portfolio Record Keeping/Fund Accounting Services
Maintain investment ledgers, provide selected portfolio
transactions, position and income reports. Maintain general
ledger and capital stock accounts. Prepare daily trial balance.
Provide selected general ledger reports. Calculate net asset
value daily. Securities yield or market value quotations will be
provided to State Street by the fund or via State Street Bank
automated pricing services.
ANNUAL FEES
ASSET
First $250 Million 2.0 Basis Points
Next $250 Million 1.5 Basis Points
Next $250 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $39,000
Additional class of shares per year $12,000
II. Special Services
Fees for activities of a non-recurring nature such as fund
consolidation or reorganization, extraordinary security shipments
and the preparation of special reports will be subject to
negotiation.
III. Term of the Contract
The parties agree that this fee schedule shall become effective
June 1, 1993 and will remain in effect until it is revised as a
result of negotiations initiated by either party.
Schedule A1
Fund Accounting
Fee Schedule
Annual
First $100 Million 3.0 Basis Points
$100 Million - $300 Million 2.0 Basis Points
$300 Million - $500 Million 1.0 Basis Points
Over $500 Million 0.5 Basis Points
Fund Minimum $39,000
Additional Class of Shares $12,000
(Plus pricing charges and other out-of-pocket expenses)
Schedule B
Out-of-Pocket Expenses
Fund Accounting
Out-of-pocket expenses include, but are not limited to,
the following:
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telephones
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific System Enhancements
- Access to the Shareholder Recordkeeping System
- Security Pricing Services
- Variable Rate Change Notification Services
- Paydown Factor Notification Services
Schedule C
Fees and Expenses
Shareholder Recordkeeping
I. Transfer Agency Services
Base Fee * (Annual fee per fund, class or other subdivision)$24,000
Account Fee* (Annual account charge)
(includes system access and funds control and reconcilement)
o Daily dividend fund $16.00
o Monthly dividend fund $10.00
o Quarterly dividend fund $10.00
o Contingent Deferred Sales Charge (Additionally) $5.00
(monthly and quarterly funds only)
o Closed Accounts* $1.20
(annual)
o Termination Fee (One time charge) $20,000
II. Shareholder Services
Other Account Fees* (Services or features not covered above)
o Account Activity Processing $3.50
(includes account establishment, transaction and maintenance
processing)
o Account Servicing $4.50
(includes shareholder servicing and correspondence)
* All fees are annualized and will be prorated on
a monthly basis for billing purposes. Out-of-pocket
expenses are not covered by these fees.
Schedule C1
Federated Investors
- Federated Funds -
I. Annual Maintenance Charge
The annual maintenance charge includes the processing of all
transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is
made for an account in the month that an account opens or closes.
Basic Annual per Account Fee
The individual per account charges will be billed as follows:
o Money Market Fund/Daily Accrual $16.65
o Money Market Fund/Sweep Account $10.00
o Fluctuating NAV/Daily Accrual
- Non FundServe $16.65
- Non Networked FundServe $14.65
o CDSC/Declared Dividend
- Non FundServe $13.75
- Non Networked FundServe $11.75
- Networking Levels 1, 2, and 4 $11.75
- Networking Level 3 $9.00
o Declared Dividend
- Non FundServe $8.75
- Non Networked FundServe $6.75
- Networked FundServe Levels 1, 2, 3, and 4 $6.75
Taxpayer Identification Processing (TIN)
The charge for TIN solicitation includes maintenance and
certification and complies to all known government regulations
regarding TIN processing.
o Maintenance $.25 per item
o Certification $.10 per item
I. Annual Maintenance Charge (con't.)
Closed Account Fee $.10 per
account per month
(No fee assessed for $0 balance open accounts)
Minimum Charges
o The monthly maintenance charge for each fund will be the
actual account fees or $1000, whichever is greater.
o All funds will be subject to the minimum monthly fee of
$1,000 except that the minimum will be waived for the
initial six months or until the fund's net assets exceed
$50,000,000, whichever occurs first.
o The "clone" funds will be subject to a monthly minimum fee of
$600.
II. Out-of-Pocket Expenses
Out-of-pocket expenses include but are not limited to: postage,
forms, telephone, microfilm, microfiche, and expenses incurred at
the specific direction of the fund. Postage for mass mailings is
due seven days in advance of the mailing date.
III. Payment
Payment is due thirty days after the date of the invoice.
Schedule C2
Federated Investors
- Bank Proprietary Funds -
I. Annual Maintenance Charge
The annual maintenance charge includes the processing of all
transactions and correspondence. The fee is billable on a
monthly basis at the rate of 1/12 of the annual fee. A charge is
made for an account in the month that an account opens or closes.
Basic Annual per Account Fee
The individual per account charges will be billed as follows:
o Money Market Fund/Daily Accrual $16.65
o Money Market Fund/Sweep Account $10.00
o Fluctuating NAV/Daily Accrual
- Non FundServe $16.65
- Non Networked FundServe $14.65
o CDSC/Declared Dividend
- Non FundServe $13.75
- Non Networked FundServe $11.75
- Networking Levels 1, 2, and 4 $11.75
- Networking Level 3 $9.00
o Declared Dividend
- Non FundServe $8.75
- Non Networked FundServe $6.75
- Networked FundServe Levels 1, 2, 3, and 4 $6.75
Taxpayer Identification Processing (TIN)
The charge for TIN solicitation includes maintenance and
certification and complies to all known government regulations
regarding TIN processing.
o Maintenance $.25 per item
o Certification $.10 per item
I. Annual Maintenance Charge (con't.)
Closed Account Fee $.10 per
account per month
(No fee assessed for $0 balance open accounts)
Minimum Charges
o The monthly maintenance charge for each fund will be the
actual account fees or $2000, whichever is greater.
II. Out-of-Pocket Expenses
Out-of-pocket expenses include but are not limited to: postage,
forms, telephone, microfilm, microfiche, and expenses incurred at
the specific direction of the fund. Postage for mass mailings is
due seven days in advance of the mailing date.
III. Payment
Payment is due thirty days after the date of the invoice.
SCHEDULE D
Out-of-Pocket Expenses Schedule
- Postage (including overnight courier service)
- Statement Stock
- Envelopes
- Telecommunication Charges (including FAX)
- Travel
- Duplicating
- Forms
- Supplies
- Microfiche
- Computer Access Charges
- Client Specific Enhancements
- Disaster Recovery
SCHEDULE E
Fee Schedule
I. Custody Services
Maintain Custody of fund assets. Settle portfolio purchases and
sales. Report buy and sell fails. Determine and collect
portfolio income. Make cash disbursements and report cash
transactions. Monitor corporate actions.
ANNUAL FEES
ASSET
First $500 Million 1.0 Basis Point
Excess .5 Basis Point
Minimum fee per year $15,000
Wire Fees $2.70 per wire
Settlements:
o Each DTC Commercial Paper $9.00
o Each DTC Transaction $9.00
o Each Federal Reserve Book Entry Transaction (Repo) $4.50
o Each Repo with Banks Other than State Street Bank $7.50
o Each Physical Transaction (NY/Boston, Private Placement)$21.75
o Each Option Written/Exercised/Expired $18.75
o Each Stock Load Transaction $12.00
o Each Book Entry Muni (Sub-custody) Transaction $15.00
o Index Fund/ETD Cost + 15%
II. Out-Of-Pocket Expenses
Telephone
Postage & Insurance
Armored carrier costs
Legal fees
Supplies related to fund records
Processing validation certificates
Forms, envelopes, Xerox copies, supplies, etc.
III. Special Services
Fees for activities of a non-recurring nature such as fund
consolidation or reorganization, extraordinary security shipments
and the preparation of special reports will be subject to
negotiation.
IV. Coupon Clipping
Monitoring for calls and processing for each monthly issue held
Monthly Charge $5.00
V. Balance Credit
A balance credit equal to 75% of the average balance in the
custodian account for the monthly billed times the 30-day T-Bill
Rate on the last Monday of the month billed will be applied
against Section I through IV above.
VI. Term of the Contract
The parties agree that this fee schedule shall become effective
June 1, 1993 and will remain in effect until it is revised as a
result of negotiations initiated by either party.
EXHIBIT 1
FA=Fund Accounting
SR=Shareholder Recordkeeping
CSP=Custody Services Procurement
CONTRACT SERVICES RELEVANT
DATE INVESTMENT COMPANY PROVIDED SCHEDULES
12/1/93 111 Corcoran Fund
12/1/93 111 Corcoran Bond Fund FA, SR A,B,C,D
12/1/93 111 Corcoran North Carolina Municipal
Securities Fund FA, SR A,B,C,D
12/1/93 American Leaders Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Automated Cash Management Trust FA,SR,CSP A,B,C,D,E
12/1/93 Automated Government Money Trust FA,SR,CSP A,B,C,D,E
01/07/94 BankSouth Select Funds SR, C,D
01/07/94 BankSouth Select Georgia Tax-Free Income Fund SR, C,D
01/07/94 BankSouth Select Government Money Market Fund SR, C,D
01/07/94 BankSouth Select Prime Money Market Fund SR, C,D
01/07/94 BankSouth Select Bond Fund SR, C,D
01/07/94 BankSouth Select Equity Fund SR, C,D
12/1/93 BayFunds FA A1,B
12/1/93 BayFunds Money Market Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Bond Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Equity Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds Short-Term Yield Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 BayFunds U.S. Treasury Money
Market Portfolio FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Trust Shares FA A1,B
12/1/93 The Biltmore Funds FA A1,B
12/1/93 Biltmore Balanced Fund FA A1,B
12/1/93 Biltmore Equity Fund FA A1,B
12/1/93 Biltmore Fixed Income Fund FA A1,B
12/1/93 Biltmore Equity Index Fund FA A1,B
12/1/93 Biltmore Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore Prime Cash Management Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Biltmore Short-Term Fixed Income Fund FA A1,B
12/1/93 Biltmore Special Values Fund FA A1,B
12/1/93 Biltmore Tax-Free Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore U.S. Treasury Money Market Fund FA A1,B
12/1/93 Institutional Shares FA A1,B
12/1/93 Investment Shares FA A1,B
12/1/93 Biltmore Quantitative Equity Fund FA A1,B
12/1/93 The Boulevard Funds FA,SR A1,B,C,D
12/1/93 Boulevard Blue Chip Growth Fund FA,SR A1,B,C,D
12/1/93 Boulevard Managed Income Fund FA,SR A1,B,C,D
12/1/93 Boulevard Managed Municipal Fund FA,SR A1,B,C,D
12/1/93 Boulevard Strategic Balanced Fund FA,SR A1,B,C,D
12/1/93 California Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Trust Series, Inc.
12/1/93 Government Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Municipal Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Prime Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Treasury Cash Series FA,SR,CSP A,B,C,D,E
12/1/93 Cash Trust Series II
12/1/93 Municipal Cash Series II FA,SR,CSP A,B,C,D,E
12/1/93 Treasury Cash Series II FA,SR,CSP A,B,C,D,E
12/1/93 DG Investor Series
12/1/93 DG Equity Fund FA,SR A1,B,C,D
12/1/93 DG Government Income Fund FA,SR A1,B,C,D
12/1/93 DG Limited Term Government Income Fund FA,SR A1,B,C,D
12/1/93 DG Municipal Income Fund FA,SR A1,B,C,D
12/1/93 DG U.S. Government Money Market Fund FA,SR A1,B,C,D
12/1/93 Federated ARMs Fund
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Federated Exchange Fund, Ltd. FA,SR,CSP A,B,C,D,E
12/1/93 Federated GNMA Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Government Trust
12/1/93 Automated Government Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Automated Treasury Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 U.S. Treasury Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Federated Growth Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated High Yield Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated Income Securities Trust
12/1/93 Federated Short-Term Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Intermediate Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Income Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Index Trust
12/1/93 Max-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Mid-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Mini-Cap Fund FA,SR,CSP A,B,C,D,E
12/1/93 Federated Intermediate Government Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Investment Funds
12/1/93 Growth Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 High Quality Bond Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Intermediate Municipal
Income Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Value Equity Portfolio FA,SR,CSP A,B,C,D,E
12/1/93 Federated Master Trust
12/1/93 Federated Municipal Trust
12/1/93 Alabama Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Connecticut Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Massachusetts Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 BayFund Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Minnesota Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 New Jersey Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash II Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Cash Series Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Virginia Municipal Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Intermediate Government Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Intermediate Municipal Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Short-Term U.S. Government Trust FA,SR,CSP A,B,C,D,E
12/1/93 Stock and Bond Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Federated Stock Trust FA,SR,CSP A,B,C,D,E
12/1/93 Federated Tax-Free Trust FA,SR,CSP A,B,C,D,E
12/1/93 Financial Reserves Fund FA A1,B
12/1/93 First Priority Funds
12/1/93 First Priority Equity Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 First Priority Fixed Income Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 First Priority Treasury Money Market Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 Limited Maturity Government Fund FA,SR A1,B,C,D
12/1/93 Fixed Income Securities, Inc.
12/1/93 Limited Term Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Limited Term Municipal Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Multi-State Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Limited Maturity Government Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Adjustable Rate U.S.
Government Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Municipal Income Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Utility Fund, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 FT Series, Inc.
12/1/93 International Equity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 International Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fund for U.S. Government Securities, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Government Income Securities, Inc. FA,SR,CSP A,B,C,D,E
1/11/94 Insight Institutional Series, Inc.
1/11/94 Insight Adjustable Rate Mortgage Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight Limited Term Income Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight Limited Term Municipal Fund FA,SR,CSP A,B,C1,D,E
1/11/94 Insight U.S. Government Fund FA,SR,CSP A,B,C1,D,E
12/1/93 Intermediate Municipal Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Intermediate Municipal Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Intermediate
Municipal Trust FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Investment Series Fund, Inc.
12/1/93 Capital Growth Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Series Trust
12/1/93 High Quality Stock Fund FA,SR,CSP A,B,C,D,E
12/1/93 Municipal Securities Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 U.S. Government Bond Fund FA,SR,CSP A,B,C,D,E
12/1/93 Edward D. Jones & Co. Daily
Passport Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Equity Income Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty High Income Bond Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Municipal Securities Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Term Trust, Inc. - 1999 FA,SR,CSP A,B,C,D,E
12/1/93 Liberty U.S. Government Money Market Trust FA,SR,CSP A,B,C,D,E
12/1/93 Liberty Utility Fund, Inc.
12/1/93 Class A Shares FA,SR,CSP A,B,C,D,E
12/1/93 Class C Shares FA,SR,CSP A,B,C,D,E
12/1/93 Liquid Cash Trust FA,SR,CSP A,B,C,D,E
12/1/93 Star Funds
12/1/93 Star Prime Obligations Fund FA,SR A,B,C,D
12/1/93 Star Relative Value Fund FA,SR A,B,C,D
12/1/93 Star Tax-Free Money Market Fund FA,SR A,B,C,D
12/1/93 Star Treasury Fund FA,SR A,B,C,D
12/1/93 Star U.S. Government Income Fund FA,SR A,B,C,D
12/1/93 The Stellar Fund FA,SR A,B,C,D
12/1/93 Magna Funds
12/1/93 Magna Intermediate Government Fund SR C,D
12/1/93 Mark Twain Funds
12/1/93 Mark Twain Equity Portfolio FA,SR A,B,C,D
12/1/93 Mark Twain Fixed Income Portfolio FA,SR A,B,C,D
12/1/93 Mark Twain Government Money
Market Portfolio FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Mark Twain Municipal Income Portfolio FA,SR A,B,C,D
12/1/93 Marshall Funds, Inc.
12/1/93 Marshall Government Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Intermediate Bond Fund FA,SR A1,B,C,D
12/1/93 Marshall Money Market Fund FA,SR A1,B,C,D
12/1/93 Investment Shares FA,SR A1,B,C,D
12/1/93 Trust Shares FA,SR A1,B,C,D
12/1/93 Marshall Short-Term Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Stock Fund FA,SR A1,B,C,D
12/1/93 Marshall Tax-Free Money Market Fund FA,SR A1,B,C,D
12/1/93 Marshall Balanced Fund FA,SR A1,B,C,D
12/1/93 Marshall Equity Income Fund FA,SR A1,B,C,D
12/1/93 Marshall Mid-Cap Stock Fund FA,SR A1,B,C,D
12/1/93 Marshall Value Equity Fund FA,SR A1,B,C,D
12/1/93 Marshal Short-Intermediate Tax-free Fund FA,SR A1,B,C,D
12/1/93 Money Market Management, Inc. FA,SR,CSP A,B,C,D,E
12/1/93 Money Market Trust FA,SR,CSP A,B,C,D,E
12/1/93 Money Market Obligations Trust
12/1/93 Government Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Prime Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Tax-Free Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Treasury Obligations Fund FA,SR,CSP A1,B,C,D,E
12/1/93 Municipal Securities Income Trust
12/1/93 California Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Florida Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Maryland Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Michigan Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New Jersey Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New York Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Ohio Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Fortress Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust Shares FA,SR,CSP A,B,C,D,E
12/1/93 Pennsylvania Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Investment Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust Shares FA,SR,CSP A,B,C,D,E
12/1/93 Income shares FA,SR,CSP A,B,C,D,E
12/1/93 Texas Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 Virginia Municipal Income Fund FA,SR,CSP A,B,C,D,E
12/1/93 New York Municipal Cash Trust
12/1/93 Cash II Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 The Planters Funds
12/1/93 Tennessee Tax-Free Bond Fund FA,SR A1,B,C,D
12/1/93 Portage Funds
12/1/93 Portage Government Money Market Fund SR C,D
12/1/93 Investment Shares SR C,D
12/1/93 Trust Shares SR C,D
12/1/93 RIMCO Monument Funds
12/1/93 RIMCO Monument Bond Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument Prime Money Market Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument Stock Fund FA,SR A,B,C,D
12/1/93 RIMCO Monument U.S. Treasury
Money Market Fund FA,SR A,B,C,D
12/1/93 Signet Select Funds
12/1/93 Maryland Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Treasury Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 U.S. Government Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Value Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 Virginia Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Funds
12/1/93 The Shawmut Fixed Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Growth Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Growth and Income
Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Intermediate Government
Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Limited Term Income Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Prime Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Small Capitalization
Equity Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Connecticut Municipal
Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Shawmut Connecticut Intermediate
Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Shawmut Massachusetts Municipal
Money Market Fund FA,SR A,B,C,D
12/1/93 The Shawmut Massachusetts Intermediate Municipal
Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Funds
12/1/93 The Starburst Government Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Government Money
Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Starburst Money Market Fund FA,SR A,B,C,D
12/1/93 Investment Shares FA,SR A,B,C,D
12/1/93 Trust Shares FA,SR A,B,C,D
12/1/93 The Starburst Municipal Income Fund FA,SR A,B,C,D
12/1/93 The Starburst Funds II
12/1/93 The Starburst Quality Income Fund FA,SR A,B,C,D
12/1/93 Tax-Free Instruments Trust
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trademark Funds
12/1/93 Trademark Equity Fund FA,SR A,B,C,D
12/1/93 Trademark Government Income Fund FA,SR A,B,C,D
12/1/93 Trademark Kentucky Municipal Bond Fund FA,SR A,B,C,D
12/1/93 Trademark Short-Intermediate
Government Fund FA,SR A,B,C,D
12/1/93 Trust for Financial Institutions
12/1/93 Government Qualifying Liquidity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Short-Term Government Qualifying
Liquidity Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Government Money Market Fund FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Service Shares FA,SR,CSP A,B,C,D,E
12/1/93 Institutional Shares FA,SR,CSP A,B,C,D,E
12/1/93 Trust for Government Cash Reserves FA,SR,CSP A,B,C,D,E
12/1/93 Trust for Short-Term U.S.
Government Securities FA,SR,CSP A,B,C,D,E
12/1/93 Trust for U.S. Treasury Obligations FA,SR,CSP A,B,C,D,E
12/1/93 Vulcan Funds
12/1/93 Vulcan Bond Fund FA,SR A1,B,C,D
12/1/93 Vulcan Stock Fund FA,SR A1,B,C,D
12/1/93 Vulcan Treasury Obligations
Money Market Fund FA,SR A1,B,C,D
Exhibit 9 under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
FORTRESS ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted
as of this 1st day of March, 1993, by the Board of
Directors of Fortress Adjustable Rate U.S. Government Fund,
Inc. (the "Fund"), a Maryland corporation with respect to
certain classes of shares ("Classes") of the portfolios of
the Corporation set forth in exhibits hereto.
1. This Plan is adopted to allow the Fund 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
broker/dealers and other participating financial
institutions and other persons ("Providers") for providing
services to the Fund and its shareholders. The Plan will be
administered by Federated Administrative Services, Inc.
("FAS"). In compensation for the services provided pursuant
to this Plan, Providers will 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 the Fund held
during the month.
3. Any payments made by the Portfolios to any
Provider pursuant to this Plan will be made pursuant to the
"Shareholder Services Agreement" entered into by FAS on
behalf of the Fund and the Provider. Providers which have
previously entered into "Administrative Agreements" or "Rule
12b-1 Agreements" with Federated Securities Corp. may be
compensated under this Plan for Services performed pursuant
to those Agreements until the Providers have executed a
"Shareholder Services Agreement" hereunder.
4. The Fund has the right (i) to select, in its
sole discretion, the Providers to participate in the Plan
and (ii) to terminate without cause and in its sole
discretion any Shareholder Services Agreement.
5. Quarterly in each year that this Plan remains
in effect, FAS shall prepare and furnish to the Board of
Directors of the Fund, and the Board of Directors shall
review, a written report of the amounts expended under the
Plan.
6. This Plan shall become effective (i) after
approval by majority votes of: (a) the Fund's Board of
Directors; and (b) the members of the Board of the
Corporation who are not interested persons of the
Corporation and have no direct or indirect financial
interest in the operation of the Corporation's Plan or in
any related documents to the Plan ("Disinterested
Directors"), cast in person at a meeting called for the
purpose of voting on the Plan; and (ii) upon execution of an
exhibit adopting this Plan.
7. This Plan shall remain in effect with respect
to each Class presently set forth on an exhibit and any
subsequent Classes 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 Class at least
annually by a majority of the Corporation's Board of
Directors and a majority of the Disinterested Directors,
cast in person at a meeting called for the purpose of voting
on such Plan. If this Plan is adopted with respect to a
class after the first annual approval by the Directors as
described above, this Plan will be effective as to that
Class upon execution of the applicable exhibit pursuant to
the provisions of paragraph 6(ii) above and will continue in
effect until the next annual approval of this Plan by the
Directors and thereafter for successive periods of one year
subject to approval as described above.
8. All material amendments to this Plan must be
approved by a vote of the Board of Directors of the Fund and
of the Disinterested Directors, cast in person at a meeting
called for the purpose of voting on it.
9. This Plan may be terminated at any time by:
(a) a majority vote of the Disinterested Directors; or (b) a
vote of a majority of the outstanding voting securities of
the Fund as defined in Section 2(a)(42) of the Act.
10. While this Plan shall be in effect, the
selection and nomination of Disinterested Directors of the
Fund shall be committed to the discretion of the
Disinterested Directors then in office.
11. 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 9 herein.
12. This Plan shall be construed in
accordance with and governed by the laws of the Commonwealth
of Pennsylvania.
Witness the due execution hereof this 1st day of
March, 1993.
FORTRESS ADJUSTABLE RATE U.S.
GOVERNMENT FUND, INC.
By:/s/ Richard B. Fisher
President
EXHIBIT A
to the
Shareholder Services Plan
Fortress Adjustable Rate U.S. Government Fund, Inc.
This Plan is adopted by Fortress Adjustable Rate
U.S. Government Fund, Inc. with respect to the Class of
Shares of the Corporation set forth above.
In compensation for the services provided pursuant
to this Plan, Providers will be paid a monthly fee computed
at the annual rate of .25 of 1% of the average aggregate net
asset value of the Shares of the Corporation held during the
month.
Witness the due execution hereof this 1st day of
March, 1993.
Fortress Adjustable Rate U.S.
Government Fund, Inc.
By: /s/ Richard B. Fisher
President
