SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [ X ] Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
(Name of Registrant as Specified In Its Charter)
FEDERATED INVESTORS
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
3) Filing Party:
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4) Date Filed:
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<PAGE>
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
PROXY STATEMENT - PLEASE VOTE!
TIME IS OF THE ESSENCE ...VOTING ONLY TAKES A FEW MINUTES AND YOUR
PARTICIPATION IS IMPORTANT! ACT NOW TO HELP THE FUND AVOID ADDITIONAL EXPENSE.
Federated Adjustable Rate U.S. Government Fund, Inc. will hold an annual
meeting of shareholders on June 30, 1999. It is important for you to vote on the
issues described in this Proxy Statement. We recommend that you read the Proxy
Statement in its entirety; the explanations will help you to decide on the
issues.
Following is an introduction to the proposals and the process.
WHY AM I BEING ASKED TO VOTE?
Mutual funds are required to obtain shareholders' votes for certain types
of changes, like those included in this Proxy Statement. You have a right to
vote on these changes.
WHAT ISSUES AM I BEING ASKED TO VOTE ON?
The proposals include the election of Directors and changes to the Fund's
fundamental investment policies.
WHY ARE INDIVIDUALS RECOMMENDED FOR ELECTION TO THE BOARD OF DIRECTORS?
The Fund is devoted to serving the needs of its shareholders, and the Board is
responsible for managing the Fund's business affairs to meet those needs. The
Board represents the shareholders and can exercise all of the Fund's powers,
except those reserved only for shareholders.
Directors are selected on the basis of their education and professional
experience. Candidates are chosen based on their distinct interest in, and
capacity for understanding the complexities of, the operation of a mutual fund.
These individuals bring considerable experience to the impartial oversight of a
fund's operation.
The Proxy Statement includes a brief description of each nominee's history and
current position with the Fund, if applicable.
WHY AM I BEING ASKED TO VOTE ON THE RATIFICATION OF INDEPENDENT AUDITORS?
The independent auditors conduct a professional examination of certain of the
Fund's accounting documents and supporting data to render an opinion on the
material fairness of the information. Because financial reporting involves
considerable discretion, the auditors' opinion is an important assurance to both
the Fund and its investors.
The Board of Directors approved the selection of Deloitte & Touche LLP,
long-time auditors of the Fund, for the current fiscal year and believes that
the continued employment of this firm is in the Fund's best interests.
WHY ARE THE FUND'S "FUNDAMENTAL POLICIES" BEING CHANGED?
Every mutual fund has certain investment policies that can be changed only with
the approval of its shareholders. These are referred to as "fundamental"
investment policies.
In some cases, these policies were adopted to reflect regulatory, business, or
industry conditions that no longer exist or no longer are necessary. In other
cases, advances in the securities markets and the economy have created different
procedures and techniques that affect the Fund's operations.
By reducing the number of "fundamental policies," the Fund may be able to
minimize the costs and delays associated with frequent shareholder meetings.
Also, the investment adviser's ability to manage the Fund's assets may be
enhanced and investment opportunities increased.
The proposed amendments will:
o reclassify as operating policies those fundamental policies that are not
required to be fundamental by the Investment Company Act of 1940, as
amended ("1940 Act");
o simplify and modernize the policies that are required to be "fundamental"
by the 1940 Act; and
o eliminate those fundamental policies that are no longer required by the
securities laws of the various states.
Federated is a conservative money manager. Our highly trained professionals are
dedicated to making investment decisions in the best interest of the Fund and
its shareholders. The Board believes that the proposed changes will be applied
responsibly by the Fund's investment adviser.
WHY ARE SOME "FUNDAMENTAL POLICIES" BEING RECLASSIFIED AS "OPERATING POLICIES?"
As noted above, some "fundamental policies" have been redefined as "operating
policies." Operating policies do not require shareholder approval to be changed.
This gives the Fund's Board additional flexibility to determine whether to
participate in new investment opportunities and to meet industry changes
promptly.
HOW DO I VOTE MY SHARES?
You may vote in person at the annual meeting of shareholders or complete and
return the enclosed Proxy Card. If you sign and return the Proxy Card without
indicating a preference, your vote will be cast "for" all the proposals.
You may also vote by telephone at 1-800-690-6903, or through the Internet at
WWW.PROXYVOTE.COM. If you choose to help save the Fund time and postage costs by
voting through the Internet or by telephone, please don't return your Proxy
Card. If you do not respond at all, we may contact you by telephone to request
that you cast your vote.
WHO DO I CALL IF I HAVE QUESTIONS ABOUT THE PROXY STATEMENT?
Call your Investment Professional or a Federated Client Service
Representative. Federated's toll-free number is 1-800-341-7400.
After careful consideration, the Board of Directors has unanimously approved
these proposals. The Board recommends that you read the enclosed materials
carefully and vote FOR all proposals.
<PAGE>
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 30, 1999
An annual meeting of the shareholders of Federated Adjustable Rate U.S.
Government Fund, Inc. (the "Fund") will be held at 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (Eastern time), on June 30,
1999 to consider proposals:
(1) To elect seven Directors.
(2) To ratify the selection of the Fund's independent auditors.
(3) To make changes to the Fund's fundamental investment policies:
(a) To amend the Fund's fundamental investment policy regarding
diversification;
(b) To amend the Fund's fundamental investment policy regarding borrowing
money and issuing senior securities;
(c) To amend the Fund's fundamental investment policy regarding
investments in real estate;
(d) To amend the Fund's fundamental investment policy regarding
investments in commodities;
(e) To amend the Fund's fundamental investment policy regarding
underwriting securities;
(f) To amend the Fund's fundamental investment policy regarding lending by
the Fund;
(g) To amend the Fund's fundamental investment policy regarding
permissible investments;
(h) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding buying securities on margin;
(i) To amend, and to make non-fundamental, the Fund's fundamental
investment policy on pledging assets;
(j) To eliminate the Fund's fundamental investment policy on investing in
restricted securities, and to amend, and to make non-fundamental, the
Fund's fundamental investment policy on investing in illiquid
securities;
(k) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding investing in other investment companies;
(l) To make non-fundamental the Fund's fundamental investment policy
regarding collateralized mortgage obligations;
(m) To make non-fundamental the Fund's fundamental investment policy
regarding dollar roll transactions;
(n) To make non-fundamental the Fund's fundamental investment policies
regarding securities lending activities;
(o) To make non-fundamental the Fund's fundamental investment policies
regarding repurchase agreement transactions;
(p) To make non-fundamental the Fund's fundamental investment policy
regarding reverse repurchase agreements;
(q) To make non-fundamental the Fund's fundamental investment policy
regarding investments in stripped mortgage securities;
(r) To amend, and to make non-fundamental, the Fund's fundamental
investment policy regarding when-issued and delayed delivery
transactions; and
(s) To make non-fundamental the Fund's fundamental investment policy
regarding temporary investments.
(4) To eliminate certain of the Fund's fundamental investment policies:
(a) To remove the Fund's fundamental investment policy on investing
in oil, gas and minerals;
(b) To remove the Fund's fundamental investment policy on investing
in issuers whose securities are owned by officers and Board
members;
(c) To remove the Fund's fundamental investment policy on investing
in new issuers;
(d) To remove the Fund's fundamental investment policy on selling
securities short; and
(e) To remove the Fund's fundamental investment policy regarding
trading portfolio securities.
(5) To approve amendments to the Fund's Articles of Incorporation to require
the approval of a "1940 Act" majority of shareholders in the event of the
sale or conveyance of the assets of the Fund to another fund or
corporation.
To transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Directors has fixed April 15, 1999 as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Board of Directors,
John W. McGonigle
Secretary
April 29, 1999
YOU CAN HELP THE FUND AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY SIGNING AND RETURNING THE ENCLOSED PROXY.
IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE ANNUAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
<PAGE>
TABLE OF CONTENTS
ABOUT THE PROXY SOLICITATION AND THE ANNUAL MEETING.............................
ELECTION OF SEVEN DIRECTORS.....................................................
ABOUT THE ELECTION OF DIRECTORS.................................................
DIRECTORS STANDING FOR ELECTION.................................................
NOMINEES NOT PRESENTLY SERVING AS DIRECTORS.....................................
RATIFICATION OF THE SELECTION OF THE INDEPENDENT AUDITORS.......................
APPROVAL OF CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT
POLICIES....................................................................
APPROVAL OF THE ELIMINATION OF CERTAIN FUNDAMENTAL
INVESTMENT POLICIES OF THE FUND.............................................
APPROVAL OF AMENDMENTS TO THE FUND'S ARTICLES OF INCORPORATION..................
INFORMATION ABOUT THE FUND......................................................
PROXIES, QUORUM AND VOTING AT THE ANNUAL MEETING................................
SHARE OWNERSHIP OF THE DIRECTORS................................................
DIRECTOR COMPENSATION...........................................................
OFFICERS OF THE FUND............................................................
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY....................
<PAGE>
PRELIMINARY
PROXY STATEMENT
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
ABOUT THE PROXY SOLICITATION AND THE ANNUAL MEETING
The enclosed proxy is solicited on behalf of the Board of Directors of
the Fund (the "Board" or "Directors"). The proxies will be voted at the annual
meeting of shareholders of the Fund to be held on June 30, 1999, at 5800
Corporate Drive, Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (such annual
meeting and any adjournment or postponement thereof are referred to as the
"Annual Meeting").
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Fund. In addition to solicitations through
the mails, proxies may be solicited by officers, employees, and agents of the
Fund or, if necessary, a communications firm retained for this purpose. Such
solicitations may be by telephone, telegraph, through the Internet or otherwise.
Any telephonic solicitations will follow procedures designed to ensure accuracy
and prevent fraud, including requiring identifying shareholder information,
recording the shareholder's instructions, and confirming to the shareholder
after the fact. Shareholders who communicate proxies by telephone or by other
electronic means have the same power and authority to issue, revoke, or
otherwise change their voting instruction as shareholders submitting proxies in
written form. The Fund may reimburse custodians, nominees, and fiduciaries for
the reasonable costs incurred by them in connection with forwarding solicitation
materials to the beneficial owners of shares held of record by such persons.
The Board has reviewed the proposed changes recommended in the
investment policies of the Fund, and the proposed amendments to the Fund's
Articles of Incorporation, and has approved them, subject to shareholder
approval. The purposes of the Annual Meeting are set forth in the accompanying
Notice. The Directors know of no business other than that mentioned in the
Notice that will be presented for consideration at the Annual Meeting. Should
other business properly be brought before the Annual Meeting, proxies will be
voted in accordance with the best judgment of the persons named as proxies. This
proxy statement and the enclosed proxy card are expected to be mailed on or
about April 29, 1999, to shareholders of record at the close of business on
April 15, 1999 (the "Record Date"). On the Record Date, the Fund had outstanding
______________ shares of common stock.
The Fund's annual report, which includes audited financial statements
for the fiscal year ended February 28, 1999, will be mailed to shareholders on
or about April 30, 1999. Requests for an annual report may be made in writing to
the Fund's principal executive offices, which are located at Federated Investors
Funds, 5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7000, or by calling
toll free 1-800-341-7400.
PROPOSAL #1: ELECTION OF SEVEN DIRECTORS
The persons named as proxies intend to vote in favor of the election of
Thomas G. Bigley, Nicholas P. Constantakis, John F. Cunningham, J. Christopher
Donahue, Charles F. Mansfield, Jr., John E. Murray, Jr. and John S. Walsh
(collectively, the "Nominees") as Directors of the Fund. Messrs. Bigley,
Constantakis, Cunningham and Murray are presently serving as Directors. If
elected by shareholders, Messrs. Donahue, Mansfield and Walsh are expected to
assume their responsibilities as Directors effective _________, 1999. Please see
"ABOUT THE ELECTION OF DIRECTORS" below for current information about the
Nominees.
Messrs. Bigley and Murray were appointed Directors on November 15, 1994,
and February 14, 1995, respectively, to fill vacancies resulting from the
decision to expand the size of the Board. Messrs. Constantakis and Cunningham
were appointed Directors on February 23, 1998, and January 1, 1999,
respectively, also to fill vacancies resulting from the decision to expand the
size of the Board. Messrs. Donahue, Mansfield and Walsh are being proposed for
election as Directors to fill vacancies anticipated to result from the
resignation of three current Directors. The anticipated resignations will not
occur if Messrs. Donahue, Mansfield and Walsh are not elected as Directors.
All Nominees have consented to serve if elected. If elected, the
Directors will hold office without limit in time until death, resignation,
retirement, or removal or until the next meeting of shareholders to elect
Directors and the election and qualification of their successors. Election of a
Director is by a plurality of the votes cast by shareholders of the Fund at the
Annual Meeting. The seven individuals receiving the greatest number of votes at
the Annual Meeting will be deemed to be elected Directors.
If any Nominee for election as a Director named above shall by reason of
death or for any other reason become unavailable as a candidate at the Annual
Meeting, votes pursuant to the enclosed proxy will be cast for a substitute
candidate by the proxies named on the proxy card, or their substitutes, present
and acting at the Annual Meeting. Any such substitute candidate for election as
a Director who is an "interested person" (as such term is defined in the
Investment Company Act of 1940, as amended (the "1940 Act")) of the Fund shall
be nominated by the Executive Committee. The selection of any substitute
candidate for election as a Director who is not an "interested person" shall be
made by a majority of the Directors who are not "interested persons" of the
Fund. The Board has no reason to believe that any Nominee will become
unavailable for election as a Director.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE TO ELECT AS DIRECTORS THE NOMINEES FOR ELECTION
TO THE BOARD OF DIRECTORS OF THE FUND
ABOUT THE ELECTION OF DIRECTORS
When elected, the Directors will hold office during the lifetime of the
Fund except that: (a) any Director may resign; (b) any Director may be removed
by written instrument signed by at least two-thirds of the number of Directors
prior to such removal; (c) any Director who requests to be retired or who has
become mentally or physically incapacitated may be retired by written instrument
signed by a majority of the other Directors; and (d) a Director may be removed
at any special meeting of the shareholders by a vote of two-thirds of the
outstanding shares of the Fund. In case a vacancy shall exist for any reason,
the remaining Directors will fill such vacancy by appointment of another
Director. The Directors will not fill any vacancy by appointment if, immediately
after filling such vacancy, less than two-thirds of the Directors then holding
office would have been elected by the shareholders. If, at any time, less than a
majority of the Directors holding office have been elected by the shareholders,
the Directors then in office will call a shareholders' meeting for the purpose
of electing Directors to fill vacancies. Otherwise, there will normally be no
meeting of shareholders called for the purpose of electing Directors.
Set forth below is a listing of: (i) the Directors standing for
election, and (ii) the Nominees standing for election who are not presently
serving as Directors, along with their addresses, birthdates, present positions
with the Fund, if applicable, and principal occupations during the past five
years:
DIRECTORS STANDING FOR ELECTION
THOMAS G. BIGLEY
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Director
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director and Member
of Executive Committee, University of Pittsburgh.
NICHOLAS P. CONSTANTAKIS
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Director or Trustee of the Federated Fund Complex; formerly, Partner, Andersen
Worldwide SC.
JOHN F. CUNNINGHAM
353 El Brillo Way
Palm Beach, FL
Birthdate: March 5, 1943
Director or Trustee of some of the Federated Funds; Chairman, President and
Chief Executive Officer, Cunningham & Co., Inc.; Trustee Associate, Boston
College; Director, EMC Corporation; formerly, Director, Redgate Communications.
JOHN E. MURRAY, JR., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Director
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray.
NOMINEES NOT PRESENTLY SERVING AS DIRECTORS
J. CHRISTOPHER DONAHUE
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company; Director,
Federated Services Company. Mr. Donahue is the son of John F. Donahue, Chairman
and Director of the Fund.
CHARLES F. MANSFIELD, JR.
80 South Road
Westhampton Beach, NY
Birthdate: April 10, 1945
Director or Trustee of some of the Federated Funds; management consultant.
JOHN S. WALSH
2007 Sherwood Drive
Valparaiso, IN
Birthdate: November 28, 1957
Director or Trustee of some of the Federated Funds; President and Director, Heat
Wagon, Inc.; President and Director, Manufacturers Products, Inc.; President,
Portable Heater Parts, a division of Manufacturers Products, Inc.; Director,
Walsh & Kelly, Inc.; formerly, Vice President, Walsh & Kelly, Inc.
PROPOSAL #2: RATIFICATION OF THE SELECTION OF INDEPENDENT AUDITORS
The 1940 Act requires that the Fund's independent auditors be selected
by the Board, including a majority of those Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund, and submitted for
ratification or rejection at the next succeeding meeting of shareholders. The
Board of Directors of the Fund, including a majority of its members who are not
"interested persons" of the Fund, approved the selection of Deloitte & Touche
LLP (the "Auditors") for the current fiscal year at a Board meeting held on
_________________, 199__.
The selection by the Board of the Auditors as independent auditors for
the current fiscal year is submitted to the shareholders for ratification. Apart
from their fees as independent auditors and certain consulting fees, neither the
Auditors nor any of their partners have a direct, or material indirect,
financial interest in the Fund or its investment adviser. The Auditors are a
major international independent accounting firm. The Board believes that the
continued employment of the services of the Auditors for the current fiscal year
would be in the Fund's best interests.
Representatives of the Auditors are not expected to be present at the
Annual Meeting. If a representative is present, he or she will have the
opportunity to make a statement and would be available to respond to appropriate
questions. The ratification of the selection of the Auditors will require the
affirmative vote of a majority of the shares present and voting at the Annual
Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE TO RATIFY THE SELECTION OF THE INDEPENDENT AUDITORS
APPROVAL OF CHANGES TO THE FUND'S
FUNDAMENTAL INVESTMENT POLICIES
INTRODUCTION TO PROPOSALS #3(A) TO #3(S) AND #4(A) TO #4(C)
The 1940 Act (which was adopted to protect mutual fund shareholders)
requires investment companies such as the Fund to adopt certain specific
investment policies or restrictions that can be changed only by shareholder
vote. An investment company may also elect to designate other policies or
restrictions that may be changed only by shareholder vote. Both types of
policies and restrictions are often referred to as "fundamental policies." These
policies and restrictions limit the investment activities of the Fund's
investment adviser.
After the Fund was formed in 1991, legal and regulatory requirements
applicable to mutual funds changed. For example, certain restrictions imposed by
state laws and regulations were preempted by the National Securities Markets
Improvement Act of 1996 ("NSMIA") and no longer apply. As a result, the Fund is
subject to fundamental policies that are no longer required to be fundamental,
and to other policies that are no longer required at all. Accordingly, the
Directors have authorized the submission to the Fund's shareholders for their
approval, and recommend that shareholders approve, the amendment,
reclassification and/or elimination of certain of the Fund's fundamental
policies.
The proposed amendments would:
(i) simplify, modernize and standardize the fundamental policies that are
required to be stated under the 1940 Act;
(ii) reclassify as operating policies those fundamental policies that are
not required to be fundamental under the 1940 Act; and
(iii)eliminate those fundamental policies that are no longer required by
the securities laws of the various states.
By reducing the number of policies that can be changed only by
shareholder vote, the Directors believe that the Fund would be able to minimize
the costs and delays associated with holding future shareholder meetings to
revise fundamental policies that become outdated or inappropriate. The Directors
also believe that the investment adviser's ability to manage the Fund's assets
in a changing investment environment will be enhanced and that investment
management opportunities will be increased by these changes. The chart that
follows briefly describes the differences between fundamental policies and
non-fundamental policies.
<TABLE>
<CAPTION>
FUNDAMENTAL POLICIES NON-FUNDAMENTAL POLICIES
------------------------------- --------------------------------
<S> <C> <C>
Who must approve changes in Board of Directors and Board of Directors
the policies? shareholders
How quickly can a change in Fairly slowly, since a vote Fairly quickly, because the
the policies be made? of shareholders is required change can be accomplished by
action of the Board of
Directors
What is the relative cost Costly to change because a Less costly to change because
to change a policy? shareholder vote requires a change can be accomplished
holding a meeting of by action of the Board of
shareholders Directors
</TABLE>
The recommended changes are specified below. Each Proposal will be voted
on separately, and the approval of each Proposal will require the approval of a
majority of the outstanding voting shares of the Fund as defined in the 1940
Act. (See "PROXIES, QUORUM AND VOTING AT THE ANNUAL MEETING" below.)
DESCRIPTION OF PROPOSED CHANGES
The proposed standardized fundamental investment policies cover those
areas for which the 1940 Act requires the Fund to have a fundamental
restriction. They satisfy current regulatory requirements and are written to
provide flexibility to respond to future legal, regulatory, market or technical
changes. THE PROPOSED STANDARDIZED CHANGES WILL NOT AFFECT THE FUND'S INVESTMENT
OBJECTIVE. ALTHOUGH THE PROPOSED CHANGES IN FUNDAMENTAL POLICIES WILL ALLOW THE
FUND GREATER FLEXIBILITY TO RESPOND TO FUTURE INVESTMENT OPPORTUNITIES, THE
BOARD OF DIRECTORS OF THE FUND DOES NOT ANTICIPATE THAT THE CHANGES,
INDIVIDUALLY OR IN THE AGGREGATE, WILL RESULT AT THIS TIME IN A MATERIAL CHANGE
IN THE LEVEL OF INVESTMENT RISK ASSOCIATED WITH INVESTMENT IN THE FUND. NOR DOES
THE BOARD OF DIRECTORS ANTICIPATE THAT THE PROPOSED CHANGES IN FUNDAMENTAL
INVESTMENT POLICIES WILL, INDIVIDUALLY OR IN THE AGGREGATE, CHANGE MATERIALLY
THE MANNER IN WHICH THE FUND IS MANAGED.
The following is the text and a summary description of the proposed
changes to the Fund's fundamental policies and restrictions. Any non-fundamental
policy may be modified or eliminated by the Directors at any future date without
any further approval of shareholders. Shareholders should note that certain of
the fundamental policies that are treated separately below currently are
combined within a single existing fundamental policy.
Presently, if the Fund adheres to a fundamental or non-fundamental
percentage restriction at the time of an investment or transaction, a later
increase or decrease in the percentage resulting from a change in the value of
the Fund's portfolio securities or the amount of its total assets does not
create a violation of the policy.
This policy will continue to apply for any of the proposed changes that are
approved.
PROPOSAL #3: APPROVAL OF AMENDMENTS TO THE FUND'S
FUNDAMENTAL INVESTMENT POLICIES
PROPOSAL #3(A): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING DIVERSIFICATION
Under the 1940 Act, the Fund's policy relating to the diversification of
its investments must be fundamental. The 1940 Act prohibits a "diversified"
mutual fund from purchasing securities of any one issuer if, at the time of
purchase, more than 5% of the fund's total assets would be invested in
securities of that issuer or the fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the
fund's total assets may be invested without regard to this limitation. The 5%
limitation does not apply to securities issued by or guaranteed by the U.S.
government, its agencies or instrumentalities or to securities issued by other
open-end investment companies.
The Fund' s present policy regarding diversification states:
"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."
In order to afford the Fund's investment adviser maximum flexibility in
managing the Fund's assets, the Directors propose to amend the Fund's
diversification policy to be consistent with the definition of a diversified
investment company under the 1940 Act. The amended policy complies with the U.S.
Securities and Exchange Commission's (the "SEC" or the "Commission") general
definition of diversification. The new policy would specifically add securities
of other investment companies to the list of issuers which are excluded from the
5% limitation. Upon approval of the Fund's shareholders, the fundamental
investment policy governing diversification will be amended as follows:
"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; securities issued or guaranteed by the government
of the United States or its agencies or instrumentalities and repurchase
agreements collateralized by such U.S. government securities; and
securities of other investment companies) if, as a result, more than 5%
of the value of its total assets would be invested in securities of that
issuer, or the Fund would own more than 10% of the outstanding voting
securities of that issuer."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(B): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING BORROWING MONEY AND ISSUING SENIOR SECURITIES
The 1940 Act requires the Fund to have a fundamental investment policy
defining its ability to borrow money or issue senior securities. In general,
limitations on borrowing are designed to protect shareholders and their
investments by restricting the Fund's ability to subject its assets to any
claims of creditors or senior security holders who would be entitled to
dividends or rights on liquidation of the Fund prior to the rights of
shareholders.
Shareholders of the Fund are being asked to approve a new standardized
fundamental policy for borrowing and the issuance of senior securities designed
to reflect all current regulatory requirements. The Fund's current policy
states:
"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, but only
to the extent necessary to assure completion of the reverse repurchase
agreements (sic), the Fund will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements."
SENIOR SECURITIES-GENERALLY. A "senior security" is an obligation of the Fund
with respect to its earnings or assets that takes precedence over the claims of
the Fund's shareholders with respect to the same earnings or assets. The 1940
Act generally prohibits the Fund from issuing senior securities, in order to
limit the use of leverage. In general, an investment company uses leverage when
it borrows money to enter into securities transactions, or acquires an asset
without being required to make payment until a later time.
SEC staff interpretations allow the Fund to engage in a number of types
of transactions which might otherwise be considered to create "senior
securities" or "leverage," so long as the Fund meets certain collateral
requirements designed to protect shareholders. For example, some transactions
that may create senior security concerns include short sales, reverse repurchase
agreements and securities transactions that obligate the Fund to pay money at a
future date (such as when-issued, forward commitment or delayed delivery
transactions). When engaging in such transactions, the Fund must set aside money
or securities to meet the SEC staff's collateralization requirements. This
procedure effectively eliminates the Fund's ability to engage in leverage for
these types of transactions.
BORROWING-GENERALLY. Under the 1940 Act, an investment company is permitted to
borrow up to 5% of its total assets for temporary purposes. A fund may only
borrow from banks. If borrowings exceed 5%, the fund must have assets totaling
at least 300% of the borrowing when the amount of the borrowing is added to the
fund's other assets. The effect of this provision is to allow the fund to borrow
from banks in amounts up to one-third (33 1/3%) of its total assets (including
the amount borrowed). Investment companies typically borrow money to meet
redemptions in order to avoid a forced, unplanned sale of portfolio securities.
This technique allows the fund greater flexibility to buy and sell portfolio
securities for investment or tax considerations, rather than for cash flow
considerations. The costs of borrowing, however, can also reduce the fund's
total return.
The present investment policy of the Fund permits borrowing to the
extent permitted under applicable law, but places limitations on the types of
securities that the Fund may purchase when engaging in reverse repurchase
agreements. The proposed investment policy will provide greater flexibility to
the Fund, and would permit the Fund to borrow money, directly or indirectly
(such as through reverse repurchase agreements), and issue senior securities
within the limits established under the 1940 Act or under any rule or regulation
of the Commission, or any SEC staff interpretation thereof. As a matter of
operating policy, the Fund does not intend to engage in leveraging. Upon
shareholder approval, the fundamental investment policy governing borrowing
money and issuing senior securities will state:
"The Fund may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(C): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
INVESTMENTS IN REAL ESTATE
Under the 1940 Act, the Fund's policy concerning investments in real
estate must be fundamental. The Fund currently has a fundamental investment
policy prohibiting the purchase or sale of real estate. The current policy,
however, allows the Fund to invest in companies that deal in real estate, or to
invest in securities that are secured by real estate, and states:
"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."
The proposed fundamental investment policy will not permit the Fund to
purchase real estate directly, but will permit the purchase of securities whose
payments of interest or principal are secured by mortgages or other rights to
real estate in the event of default. The investment policy will also enable the
Fund to invest in companies within the real estate industry, provided such
investments are consistent with the Fund's investment objective and policies.
Upon shareholder approval, the fundamental investment policy governing
investments in real estate will state:
"The Fund may not purchase or sell real estate, provided that this
restriction does not prevent the Fund from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein. The Fund may exercise its rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(D): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENTS IN COMMODITIES
Under the 1940 Act, the Fund's policy concerning investments in
commodities must be fundamental. The Fund is currently subject to a fundamental
restriction prohibiting the purchase or sale of commodities. Historically, the
most common types of commodities have been physical commodities such as wheat,
cotton, rice and corn. However, under federal law, futures contracts are
considered to be commodities and, therefore, financial futures contracts, such
as futures contracts related to currencies, stock indices or interest rates are
considered to be commodities. Financial futures contracts enable an investment
company to buy (or sell) the right to receive the cash difference between the
contract price for an underlying asset or index and the future market price, if
the market price is higher. Investment companies often desire to invest in
financial futures contracts and options related to such contracts for hedging or
other investment reasons.
The Fund is not currently authorized to invest in financial futures
contracts and options. The proposed policy would provide appropriate flexibility
for the Fund to invest in such instruments in the future. As proposed, the new
policy is broad enough to permit investment in financial futures instruments for
either investment or hedging purposes, which is broader than the Fund's current
policies. Using financial futures instruments can involve substantial risks, and
would be utilized only if the Fund's investment adviser determined that such
investments are advisable and such practices were affirmatively authorized by
the Board and disclosed in the Fund's prospectus or statement of additional
information. Upon shareholder approval, the fundamental investment policy
governing commodities will state:
"The Fund may not purchase or sell physical commodities, provided that
the Fund may purchase securities of companies that deal in commodities.
For purposes of this restriction, investments in transactions involving
futures contracts and options, forward currency contracts, swap
transactions and other financial contracts that settle by payment of
cash are not deemed to be investments in commodities."
This does not constitute a change in the Fund's policy. Rather, it
reflects a restatement to standardized language now to be used by all of the
Federated Funds, and is submitted to shareholders to comply with the 1940 Act.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(E): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING UNDERWRITING SECURITIES
Under the 1940 Act, the Fund's policy relating to underwriting is
required to be fundamental. The Fund currently is subject to a fundamental
investment policy prohibiting it from acting as an underwriter of the securities
of other issuers, and states:
"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."
A person or company generally is considered an underwriter under the
federal securities laws if it participates in the public distribution of
securities of OTHER ISSUERS, usually by purchasing the securities from the
issuer and re-selling the securities to the public. From time to time, a mutual
fund may purchase a security for investment purposes which it later sells or
redistributes to institutional investors or others under circumstances where the
Fund could possibly be considered to be an underwriter under the technical
definition of underwriter contained in the securities laws. The current
underwriting policy for the Fund specifically permits such re-sales.
Upon shareholder approval, the fundamental investment policy concerning
underwriting will state:
"The Fund may not underwrite the securities of other issuers, except
that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances
where it may be considered to be an underwriter under the Securities Act
of 1933."
This does not constitute a substantive change in the Fund's policy.
Rather, it reflects a restatement to standardized language now to be used by all
of the Federated Funds, and is submitted to shareholders to comply with the 1940
Act.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(F): TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING LENDING BY THE FUND
Under the 1940 Act, the Fund's policy concerning lending must be
fundamental. The Fund currently is subject to a fundamental investment policy
limiting its ability to make loans, which states:
"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 rate demand notes, bonds, debentures,
notes, certificates of indebtedness, or other debt securities, entering
into repurchase agreements, or engaging in other transactions where
permitted by the Fund's investment objective, policies and limitations."
In order to ensure that the Fund may invest in certain debt securities
or repurchase agreements, which could technically be characterized as the making
of loans, the Fund's current fundamental restriction specifically permits such
investments. In addition, the Fund's fundamental policy explicitly permits the
Fund to lend its portfolio securities. Securities lending is a practice that has
become common in the mutual fund industry and involves the temporary loan of
portfolio securities to parties who use the securities for the settlement of
securities transactions. The collateral delivered to the Fund in connection with
such a transaction is then invested to provide the Fund with additional income
it might not otherwise have.
Securities lending involves certain risks if the borrower fails to
return the securities. However, management believes that with appropriate
controls, such as 100% or greater collateralization of the loan and regular
monitoring of the creditworthiness of the counterparty, the ability to engage in
securities lending does not materially increase the risks to which the Fund
currently is subject. In addition, securities on loan cannot generally be sold
until the term of the loan is over. Upon approval of the Fund's shareholders,
the fundamental investment policy governing lending assets will state:
"The Fund may not make loans, provided that this restriction does not
prevent the Fund from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(G): TO AMEND THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING PERMISSIBLE INVESTMENTS
The Fund currently has a fundamental investment policy pertaining to its
permissible investments that states:
"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."
Since the Fund adopted this fundamental policy, the investment focus of
the Fund's investment adviser and the types of securities in which it believes
the Fund's assets should be invested to achieve the Fund's investment objective
have changed. Therefore, the Fund's adviser has proposed to amend the investment
policy to expand the range of permissible investments in which the Fund may
invest to include U.S. government securities. By modifying this fundamental
investment policy, the Fund's investment adviser believes that the Fund will
have greater flexibility to invest in a broader array of securities which are
acceptable investments for the Fund in seeking to achieve its investment
objective of providing current income with volatility of principal which is
lower than investment companies investing primarily in fixed-rate mortgage
securities.
Upon the approval of shareholders, the Fund's fundamental investment
policy regarding permissible investments will state:
"Under normal circumstances, the Fund will invest at least 65% of the value
of its total assets in U.S. government securities and adjustable and
floating rate mortgage securities that are issued or guaranteed by the U.S.
government, its agencies or instrumentalities."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(H): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING BUYING SECURITIES ON MARGIN
The Fund is not required to have a fundamental restriction on margin
transactions. Accordingly, it is proposed that the Fund's existing fundamental
policy be replaced with a non-fundamental restriction. The Fund's current policy
provides:
"The Fund will not purchase any securities on margin, but may obtain such
short-term credits as are necessary for the clearance of transactions. "
The proposed non-fundamental policy makes minor changes in wording from
the existing fundamental restriction and expands the list of margin transactions
excepted from the prohibition to include margin deposits in connection with
financial options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments. While the
Fund is not presently authorized to engage in these latter transactions, the
proposed policy would provide appropriate flexibility for the Fund to invest in
such investments in the future.
Upon the approval of the elimination of the existing fundamental policy
on engaging in margin transactions, the Fund would become subject to the
following non-fundamental policy:
"The Fund will not purchase securities on margin, provided that the Fund
may obtain short-term credits necessary for the clearance of purchases
and sales of securities and further provided that the Fund may make
margin deposits in connection with its use of financial options and
futures, forward and spot currency contracts, swap transactions and
other financial contracts or derivative instruments."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(I): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY ON PLEDGING ASSETS
The Fund is not required to have a fundamental investment policy with
respect to the pledging of assets. To maximize the Fund's flexibility in this
area, the Board of the Fund believes the policy on pledging assets should be
made non-fundamental. The non-fundamental policy would be similar to the
fundamental policy proposed to be eliminated, which states:
"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."
The Board does not expect this change to have a material impact on the
Fund's operations. Establishing the policy as non-fundamental, however, would
enable the Board to change this policy in the future without shareholder
approval. Although the Fund is proposing to eliminate the 10% limitation on the
amount of Fund assets that may be pledged, the Fund does not presently intend to
exceed this limitation. Upon the approval of the elimination of the existing
fundamental policy on pledging assets, the Fund would become subject to the
following non-fundamental policy:
"The Fund will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements
in connection with permissible activities."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(J): TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN RESTRICTED SECURITIES, AND TO AMEND AND TO MAKE NON-FUNDAMENTAL THE
FUND'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING IN ILLIQUID SECURITIES
There is no legal requirement that the Fund have its present fundamental
policy on investing in restricted securities, or its present fundamental policy
on investing in illiquid securities. Accordingly, the Board believes that the
Fund's restricted securities policy should be eliminated, and that the Fund's
fundamental policy pertaining to illiquid securities should be amended to comply
with present legal guidelines as a non-fundamental policy.
The Fund's fundamental investment policy pertaining to restricted
securities states:
"The Fund will not invest more than 10% of the value of its net assets
in securities subject to restrictions on resale under the Securities Act
of 1933, including repurchase agreements providing for settlement in
more than seven days after notice."
This policy was adopted by the Fund because historically restricted
securities were viewed as illiquid since they could not be sold within seven
days. Investment companies issuing redeemable securities are required to meet a
shareholder's redemption request at the current net asset value within seven
days of receiving the request for redemption. In order to do this, some portion
of the securities in the Fund's portfolio must be "liquid" so that the
securities can be sold in sufficient time to obtain the necessary cash to meet
redemption requests. It is important to note that many restricted securities
are, in fact, quite LIQUID and can be purchased without jeopardizing the
liquidity of the Fund's portfolio.
Certain state securities regulators previously required mutual funds to
have a fundamental policy limiting investment in restricted securities. Since
the enactment of NSMIA, states no longer have the jurisdiction to impose such
requirements. Furthermore, rules adopted by the SEC have substantially increased
the number of restricted securities that can now be considered liquid and, in
addition, have given to the Directors the ability to determine, under specific
guidelines, that a security is liquid. The Directors may delegate this duty to
the investment adviser provided the investment adviser's determination of
liquidity is made in accordance with the guidelines established and monitored by
the Directors.
The Fund's current restricted securities policy prevents the Fund from
acquiring a restricted security that may be viewed by the Fund's investment
adviser as liquid. As a result, the Fund's management has suggested that the
policy be eliminated. If this proposal is approved, the Fund will be able to
invest to an unlimited extent in restricted securities as long as they meet the
Directors' guidelines for liquidity, which are covered under the related policy
regarding liquidity of Fund assets. The Fund has a fundamental investment policy
on investing in illiquid securities that states:
"The Fund will invest no more than 10% of its net assets in illiquid
securities including repurchase agreements providing for settlement in more
than seven days after notice."
With the exception of money market funds, which are subject to a more
restrictive rule, the SEC takes the position that an investment company should
not invest more than 15% of its net assets in illiquid securities. Subject to
shareholder approval, the Fund's non-fundamental illiquid securities policy will
increase the Fund's limitation on investments in illiquid securities to 15% of
the Fund's net assets. The proposed non-fundamental policy thus will comply with
pertinent SEC interpretations and guidelines. Establishing the policy as
non-fundamental will enable the Board to change this in the future without
shareholder approval.
Upon the approval of this proposal governing investing in illiquid
securities, the Fund will become subject to the following non-fundamental
investment policy pertaining to illiquid securities:
"The Fund will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as a
result, the value of such securities would exceed, in the aggregate, 15%
of the Fund's net assets."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(K): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING INVESTING IN
OTHER INVESTMENT COMPANIES
The Fund currently has a fundamental investment policy that confines its
investments in the securities of other investment companies to stock of
closed-end investment companies. The Fund's investment adviser believes, and the
Board has concluded, that this prohibition unnecessarily limits the Fund's
investments. Amending this policy would expand the investment opportunities
available to the Fund by allowing the Fund to invest in shares of other open-end
investment companies.
Investments in other investment companies are limited under the 1940 Act
and, in the case of the Fund, by an exemptive order issued by the Commission
(the "Order"). The 1940 Act and the Order limit both the portion of the Fund's
assets which may be so invested in a particular fund, and the percentage of such
a fund which may be owned by the Fund. Normally, each investment company in
which the Fund invests will have its own operating expenses, including advisory
fees; however, the Fund's investment adviser will waive the portion of its
advisory fee attributable to assets invested in other investment companies. It
is expected that the other duplicative expenses are justified by the benefit of
having access to the markets in which such a fund invests, or in the investment
techniques or advisers of such funds.
At the present time, the Board expects to utilize the authority provided
by this proposal to invest the Fund's temporary cash reserves in shares of money
market funds. These cash reserves typically arise from the receipt of dividend
and interest income from portfolio securities, the receipt of payment for sale
of portfolio securities, defensive cash positions and the decision to hold cash
to meet redemptions or make anticipated dividend payments. Further, by changing
the policy from fundamental to an operating policy, the Directors believe that
maximum flexibility will be afforded to the Fund to amend the policy as
appropriate in the future without the burden and delay to the Fund and its
shareholders of holding a special meeting.
The ability to purchase shares of money market funds would be beneficial
because it would provide the Fund with additional investment opportunities late
in each business day, when opportunities to acquire money market instruments are
limited. Otherwise, the Fund would be forced to hold some of its cash
uninvested, resulting in little or no investment income.
If shareholders approve this item, the new operating policy will read as
follows:
"The Fund may invest its assets in securities of other investment
companies as an efficient means of carrying out its investment policies.
It should be noted that investment companies incur certain expenses,
such as management fees, and, therefore, any investment by the Fund in
shares of other investment companies may be subject to such duplicate
expenses. At the present time, the Fund expects that its investments in
other investment companies will be limited to shares of money market
funds, including funds affiliated with the Fund's investment adviser."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(L): TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING COLLATERALIZED MORTGAGE OBLIGATIONS
The Fund currently has a fundamental investment policy pertaining to
investing in collateralized mortgage obligations that states:
"The Fund will only purchase collateralized mortgage obligations which
are rated in the highest rating category by a nationally recognized rating
agency."
The Fund is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that this fundamental policy be replaced
with an identical non-fundamental policy. The Fund has no present intention to
change this policy, and will not do so unless authorized by appropriate Board
action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(M): TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING DOLLAR ROLL TRANSACTIONS
The Fund currently has a fundamental investment policy pertaining to
dollar roll transactions that states:
"The Fund may engage in dollar roll transactions with respect to
mortgage securities issued by Government National Mortgage Association,
Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation."
The Fund is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that this fundamental policy be replaced
with an identical non-fundamental policy. The Fund has no present intention to
change this policy, and will not do so unless authorized by appropriate Board
action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(N): TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL INVESTMENT
POLICIES REGARDING SECURITIES LENDING ACTIVITIES
The Fund currently is subject to two fundamental investment policies
pertaining to securities lending activities that provide:
"The Fund may lend portfolio securities up to one-third of the value of
its total assets to brokers/dealers, banks, or other institutional
borrowers of securities. The Fund will only enter into loan agreements
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."
"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."
These policies are not required to be fundamental under the 1940 Act, and they
merely restate the current legal requirements for engaging in these activities.
Consequently, it is proposed that these policies be replaced with identical
non-fundamental policies. The Fund has no present intention to change these
policies, and will not do so unless authorized by appropriate Board action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(O): TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL INVESTMENT
POLICIES REGARDING REPURCHASE AGREEMENT TRANSACTIONS
The Fund is presently subject to two fundamental investment policies
relating to repurchase agreements that state:
"The Fund may enter into repurchase agreements. 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
Fund's Board of Directors.
"The Fund requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to market
daily."
The 1940 Act does not require that these policies be fundamental. As a
consequence, it is proposed that these fundamental policies be replaced with
identical non-fundamental policies. The Fund has no present intention to change
these policies, and will not do so unless authorized by appropriate Board
action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(P): TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING REVERSE REPURCHASE AGREEMENTS
The Fund is presently subject to a fundamental investment policy
regarding reverse repurchase agreements that states that:
"The Fund may enter into reverse repurchase agreements. 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 transactions are settled."
Because the 1940 Act does not require that this investment policy be
fundamental, it is proposed that it be replaced with an identical
non-fundamental investment policy. The Fund has no present intention to change
this policy, and will not do so unless authorized by appropriate Board action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(Q): TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL INVESTMENT
POLICY REGARDING INVESTMENTS IN STRIPPED MORTGAGE SECURITIES
The Fund is presently subject to a fundamental investment policy that
states:
"The Fund will not invest its assets in stripped mortgage securities."
The 1940 Act does not require that this policy be fundamental, and thus,
it is proposed that it be replaced with an identical non-fundamental investment
policy. The Fund has no present intention to invest in stripped mortgage
securities, and will not do so unless authorized by appropriate Board action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(R): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING WHEN-ISSUED AND DELAYED DELIVERY
TRANSACTIONS
The Fund currently has a fundamental investment policy governing its
ability to engage in when-issued and delayed delivery transactions that states:
"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. Liquid assets of the Fund sufficient to make payment for the
securities to be purchased are segregated at the trade date. These
securities are marked to market daily and are maintained until the
transaction is settled. The Fund does not intend to engage in
when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its
assets."
The Fund is not required under the 1940 Act to have such a fundamental
policy pertaining to these types of transactions. Accordingly, it is proposed
that the Fund's existing fundamental policy be replaced with a substantially
similar non-fundamental policy. It is proposed that the final sentence of the
current fundamental policy, pertaining to the segregation of the Fund's total
assets when engaging in when-issued and delayed delivery transactions, be
eliminated, as there is no legal requirement the Fund adopt such a limitation.
If this Proposal is approved by shareholders, it is anticipated that the Fund
will engage in these types of transactions in the same manner as presently.
Upon the approval of the elimination of the existing fundamental policy
on engaging in when-issued and delayed delivery transactions, the Fund would
become subject to the following non-fundamental policy:
"The Fund engages in when-issued and delayed delivery transaction only
for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies, and not for investment
leverage. Liquid assets of the Fund sufficient to make payment for the
securities to be purchased are segregated at the trade date. Segregated
assets are marked to market daily and sufficient assets are maintained
until the transaction is settled."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(S): TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING TEMPORARY INVESTMENTS
The Fund currently has a fundamental investment policy pertaining to
temporary investments that states:
"The Fund may invest temporarily in cash and cash items during times of
unusual market conditions for defensive purposes and to maintain liquidity."
The Fund is not required under the 1940 Act to have such a fundamental
policy, it is proposed that this fundamental policy be replaced with an
identical non-fundamental policy. The Fund has no present intention to change
this policy, and will not do so unless authorized by appropriate Board action.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4: REMOVAL OF CERTAIN OF THE FUND'S
FUNDAMENTAL INVESTMENT POLICIES
The Board has determined that certain of the current fundamental
investment policies are unnecessary and should be removed. Until NSMIA was
adopted in 1996, the securities laws of several states required every investment
company which intended to sell its shares in those states to adopt policies
governing a variety of operational issues, including investment in certain
securities. As a consequence of those restrictions, the Fund adopted the
investment policies described below and agreed that they would be changed only
upon the approval of shareholders. Since these prohibitions are no longer
required under current law, the management of the Fund has recommended, and the
Board has determined, that these policies should be removed. The removal of
these policies would provide greater flexibility in the management of the Fund
by permitting the Fund to purchase a broader range of securities that are
permitted investments and that are consistent with its investment objective and
policies.
The policies being removed are listed below. Each will be voted on
separately, and the approval of each Proposal will require the affirmative vote
of a majority of the outstanding voting shares of the Fund as defined in the
1940 Act. (See "PROXIES, QUORUM AND VOTING AT THE ANNUAL MEETING" below).
PROPOSAL #4(A): TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON INVESTING IN OIL, GAS AND MINERALS
The Fund is not required to have a fundamental restriction with respect
to oil, gas or mineral investments. To maximize the Fund's flexibility in this
area, the Board of the Fund believes that the Fund's fundamental investment
policy on oil, gas and mineral investments should be eliminated. This
restriction was imposed by state laws and NSMIA preempts that requirement.
Notwithstanding the elimination of this fundamental policy, the Fund does not
expect to invest at this time in oil, gas or mineral exploration or development
programs or leases.
Upon the approval of shareholders, the following fundamental policy on
investments in oil, gas or minerals for the Fund will be eliminated:
"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 or sponsor such programs."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(B): TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON INVESTING IN ISSUERS WHOSE SECURITIES ARE
OWNED BY OFFICERS AND BOARD MEMBERS
There is no legal requirement that the Fund have this fundamental
policy. This restriction was imposed by state laws and was preempted by NSMIA.
Moreover, the Board of the Fund and its investment adviser do not believe this
policy provides any safeguards against conflicts of interest that are not
already effectively covered under the Fund's Code of Ethics. Accordingly, the
Board believes this restriction should be eliminated.
Upon the approval of Proposal #4(b), the following fundamental policy on
purchasing securities will be eliminated:
"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."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(C): TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN SECURITIES OF NEW ISSUERS
The Fund is not required to have a fundamental restriction with respect
to investing in securities of companies that have been in operation for less
than three years. To maximize the Fund's investment flexibility, the Board
believes that the Fund's policy on investments in such companies should be
eliminated. This limitation was imposed by state laws and NSMIA preempts that
requirement.
Upon the approval of Proposal #4(c), the following fundamental policy
will be eliminated:
"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 collateralized mortgage
obligations or real estate mortgage investment conduits 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.)"
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(D): TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT
POLICY ON SELLING SECURITIES SHORT
The Fund is not required to have a fundamental restriction with respect
to short sales of securities. To maximize the Fund's flexibility in this area,
the Board believes that the Fund's restriction on short sales of securities
should be eliminated. This restriction was imposed by state laws and NSMIA
preempts that requirement. Notwithstanding the elimination of this fundamental
restriction, the Fund expects to continue not to engage in short sales of
securities, except to the extent that the Fund contemporaneously owns or has the
right to acquire at no additional cost securities identical to, or convertible
into or exchangeable for, those sold short. Upon the approval of Proposal #4(d)
by shareholders, the following fundamental investment policy will be eliminated:
"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."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(E): TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING TRADING PORTFOLIO SECURITIES
The Fund is presently subject to a fundamental investment policy that
provides that "the Fund may trade or dispose of portfolio securities as
considered necessary to meet its investment objective." The Fund is not required
to have a fundamental investment policy with respect to this activity. To
maximize the Fund's investment flexibility,
<PAGE>
the Fund's investment adviser believes that this investment policy should be
eliminated. Upon approval by the shareholders of this Proposal #4(e), it is
intended that the adviser will continue to operate the Fund by trading and
disposing of portfolio securities as necessary to meet the Fund's investment
objective.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #5: APPROVAL OF AMENDMENTS TO THE FUND'S
ARTICLES
OF INCORPORATION TO REQUIRE THE APPROVAL OF A "1940 ACT" MAJORITY OF
SHAREHOLDERS IN THE EVENT OF THE SALE OR CONVEYANCE OF THE ASSETS OF THE FUND TO
ANOTHER FUND OR CORPORATION
Mutual funds, such as the Fund, are required to organize under the laws
of a state and to create and be bound by organizational documents outlining how
they will operate. In the case of the Fund, these organizational documents are
the Articles of Incorporation and the By-Laws. Since the adoption of the Fund's
Articles of Incorporation in 1991, the market for mutual funds has evolved,
requiring mutual funds to be more flexible in their operation so that they may
respond quickly to changes in the market. Several items in the Fund's Articles
of Incorporation prohibit the Fund from responding quickly and favorably to
changing markets without going to the expense and delay of holding a shareholder
meeting. Accordingly, the Directors have approved, and have authorized the
submission to the Fund's shareholders for their approval, certain amendments to
the Fund's Articles of Incorporation. If these amendments are approved by
shareholders, and in light of other amendments that have been adopted to the
Articles of Incorporation that do not require shareholder approval, it is
contemplated that the Amended and Restated Articles of Incorporation will,
following Board approval, be filed in Maryland following the Annual Meeting. The
approval of the proposed amendments will require the affirmative vote of a
majority of the shares entitled to be voted on the amendments.
The Articles of Incorporation currently require the favorable vote of
the holders of a majority of the shares of the Fund to take any action or to
authorize any action, including the sale or conveyance of the Fund's assets to
another fund or corporation. To reduce the likelihood of greater expenses in a
proposed solicitation for the approval of such a sale and conveyance, the
Directors have adopted an amendment that would permit, to the extent permitted
under applicable laws, a "1940 Act" majority vote to approve these types of
transactions. A "1940 Act" majority vote means the affirmative vote of: (a) 67%
or more of the voting securities present at the meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy; or (b) more than 50% of the outstanding voting securities, whichever is
less.
There is currently no plan to sell and convey shares of the Fund to any
other open-end management investment company. To provide the Fund with greater
flexibility, and in the event circumstances would change, and the Directors
would determine that a sale and conveyance of assets would be in the best
interest of the Fund, the Directors are recommending that shareholders approve
the adoption of this proposed amendment to the Amended and Restated Articles of
Incorporation.
If approved by shareholders, the Amended and Restated Articles of
Incorporation would provide substantially to the effect that:
"The Directors, with the approval of a vote of the holders of a majority
of the shares of the Fund, may sell and convey the assets of the Fund to
another trust or corporation organized under the laws of any state of
the United States, which is a diversified open-end management investment
company as defined in the 1940 Act, for an adequate consideration which
may include the assumption of all outstanding obligations, taxes and
other liabilities, accrued or contingent, of the Fund and which may
include shares of beneficial interest or stock of such trust or
corporation. Upon making provision for the payment of all the Fund's
liabilities, by such assumption or otherwise, the Directors shall
distribute the remaining proceeds ratably among the holders of the
shares of the Fund then outstanding."
In the event that the amendments to the Amended and Restated Articles of
Incorporation are not approved by shareholders, the provisions of the Amended
and Restated Articles of Incorporation shall remain as they are presently in the
Articles of Incorporation, and the Board of Directors will consider what action,
if any, should be taken.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
INFORMATION ABOUT THE FUND
PROXIES, QUORUM AND VOTING AT THE ANNUAL MEETING
The favorable vote of: (a) the holders of 67% or more of the outstanding
voting securities present at the Annual Meeting, if the holders of 50% or more
of the outstanding voting securities of the Fund are present or represented by
proxy; or (b) the vote of the holders of more than 50% of the outstanding voting
securities, whichever is less, is required to approve all of the proposals,
except the election of Directors, the ratification of the selection of the
Auditors, and the amendments to the Articles of Incorporation.
Only shareholders of record on the Record Date will be entitled to vote at
the Annual Meeting. Each share of the Fund is entitled to one vote. Fractional
shares are entitled to proportionate shares of one vote.
Any person giving a proxy has the power to revoke it any time prior to
its exercise by executing a superseding proxy or by submitting a written notice
of revocation to the Secretary of the Fund. In addition, although mere
attendance at the Annual Meeting will not revoke a proxy, a shareholder present
at the Annual Meeting may withdraw his or her proxy and vote in person. All
properly executed and unrevoked proxies received in time for the Annual Meeting
will be voted in accordance with the instructions contained in the proxies. IF
NO INSTRUCTION IS GIVEN ON THE PROXY, THE PERSONS NAMED AS PROXIES WILL VOTE THE
SHARES REPRESENTED THEREBY IN FAVOR OF THE MATTERS SET FORTH IN THE ATTACHED
NOTICE.
In order to hold the Annual Meeting, a "quorum" of shareholders must be
present. Holders of one-third of the total number of outstanding shares of the
Fund, present in person or by proxy, shall be required to constitute a quorum
for the purpose of voting on the proposals made.
For purposes of determining a quorum for transacting business at the
Annual Meeting, abstentions and broker "non-votes" (that is, proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owner or other persons entitled to vote shares on a
particular matter with respect to which the brokers or nominees do not have
discretionary power) will be treated as shares that are PRESENT but which have
not been VOTED. For this reason, abstentions and broker non-votes will have the
effect of a "no" vote for purposes of obtaining the requisite approval of some
of the proposals.
If a quorum is not present, the persons named as proxies may vote those
proxies that have been received to adjourn the Annual Meeting to a later date.
In the event that a quorum is present but sufficient votes in favor of one or
more of the proposals have not been received, the persons named as proxies may
propose one or more adjournments of the Annual Meeting to permit further
solicitations of proxies with respect to such proposal(s). All such adjournments
will require the affirmative vote of a majority of the shares present in person
or by proxy at the session of the Annual Meeting to be adjourned. The persons
named as proxies will vote AGAINST an adjournment those proxies that they are
required to vote against the proposal, and will vote in FAVOR of such an
adjournment all other proxies that they are authorized to vote. A shareholder
vote may be taken on the proposals in this proxy statement prior to any such
adjournment if sufficient votes have been received for approval.
As referred to in this Proxy Statement, the "Federated Fund Complex,"
"The Funds" or "Funds" includes the following investment companies: Automated
Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.; CCB
Funds; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American Leaders
Fund, Inc.; Federated ARMs Fund; Federated Core Trust; Federated Equity Funds;
Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Master Trust; Federated Municipal Opportunities Fund, Inc.;
Federated Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust;
Liquid Cash Trust; Managed Series Trust; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Regions Funds; RIGGS Funds;
Tax-Free Instruments Trust; The Planters Funds; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; WesMark Funds; WCT Funds; World Investment Series, Inc.;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; High Yield Cash Trust;
Investment Series Trust; Targeted Duration Trust; The Virtus Funds; and Trust
for Financial Institutions.
SHARE OWNERSHIP OF THE DIRECTORS
Officers and Directors of the Fund own less than 1% of the Fund's outstanding
shares.
At the close of business on the Record Date, the following persons owned,
to the knowledge of management, more than 5% of the outstanding shares of the
Fund: [TO BE INSERTED]
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
FUND FUND1# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue*@ $0 $0 for the Fund and
Chairman and Director 56 other investment companies in the Fund Complex
Richard B. Fisher $0 $0 for the Fund and
President and Director 56 other investment companies in the Fund Complex
Thomas G. Bigley $_____ $113,860.22 for the Fund and
Director 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $_____ $125,264.48 for the Fund and
Director 56 other investment companies in the Fund Complex
Nicholas P. Constantakis $_____ $47,958.02 for the Fund and
Director 56 other investment companies in the Func Complex
William J. Copeland $_____ $125,264.48 for the Fund and
Director 56 other investment companies in the Fund Complex
John F. Cunningham2 $0 $0 for the Fund and
Director 56 other investment companies in the Fund Complex
James E. Dowd $_____ $125,264.48 for the Fund and
Director 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D.* $_____ $113,860.22 for the Fund and
Director 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr.@ $_____ $125,264.48 for the Fund and
Director 56 other investment companies in the Fund Complex
Peter E. Madden $_____ $113,860.22 for the Fund and
Director 56 other investment companies in the Fund Complex
John E. Murray, Jr. $_____ $113,860.22 for the Fund and
Director 56 other investment companies in the Fund Complex
Wesley W. Posvar $_____ $113,860.22 for the Fund and
Director 56 other investment companies in the Fund Complex
Marjorie P. Smuts $_____ $113,860.22 for the Fund and
Director 56 other investment companies in the Fund Complex
</TABLE>
1 Information is furnished for the fiscal year ended February 28, 1999.
2 Mr. Cunningham became a member of the Board of Directors on January 1, 1999.
He did not receive any fees from the Fund Complex as of the last calendar
year.
# The aggregate compensation is provided for the Fund which is comprised of
one portfolio.
+ The information is provided for the last calendar year.
* This Director is deemed to be an "interested person" as defined in the
1940 Act.
@ Member of the Executive Committee.
During the fiscal year ended February 28, 1999, there were four meetings
of the Board of Directors. The interested Directors, other than Dr. Ellis, do
not receive fees from the Fund. Dr. Ellis is an interested person by reason of
the employment of his son-in-law by Federated Securities Corp. All Directors
were reimbursed for expenses for attendance at Board of Directors meetings.
The Executive Committee of the Board of Directors handles the
responsibilities of the Board between meetings of the Board. Other than its
Executive Committee, the Fund has one Board committee, the Audit Committee.
Generally, the function of the Audit Committee is to assist the Board of
Directors in fulfilling its duties relating to the Fund's accounting and
financial reporting practices and to serve as a direct line of communication
between the Board of Directors and the independent auditors. The specific
functions of the Audit Committee include recommending the engagement or
retention of the independent auditors, reviewing with the independent auditors
the plan and the results of the auditing engagement, approving professional
services provided by the independent auditors prior to the performance of such
services, considering the range of audit and non-audit fees, reviewing the
independence of the independent auditors, reviewing the scope and results of the
Fund's procedures for internal auditing, and reviewing the Fund's system of
internal accounting controls.
Messrs. Flaherty, Conroy, Copeland, and Dowd serve on the Audit
Committee. These Directors are not interested Directors of the Fund. During the
fiscal year ended February 28, 1999, there were four meetings of the Audit
Committee. All of the members of the Audit Committee were present for each
meeting. Each member of the Audit Committee receives an annual fee of $100 plus
$25 for attendance at each meeting and is reimbursed for expenses of attendance.
OFFICERS OF THE FUND
The executive officers of the Fund are elected annually by the Board of
Directors. Each officer holds the office until qualification of his successor.
The names and birthdates of the executive officers of the Fund and their
principal occupations during the last five years are as follows:
John F. Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Director
Chief Executive Officer and Director or Trustee of the Federated Fund
Complex; Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Advisers, Federated Management, and Federated Research; Chairman and
Director, Federated Research Corp. and Federated Global Research Corp.;
Chairman, Passport Research, Ltd. Mr.
Donahue is the father of J. Christopher Donahue, Executive Vice President
of the Fund and Nominee for Director.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
President and Director
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President and
Director, Federated Investors, Inc.; President and Trustee, Federated Advisers,
Federated Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company; Director,
Federated Services Company. Mr. Donahue is the son of John F. Donahue, Chairman
and Director of the Fund.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President and Secretary of the Federated Fund Complex; Executive
Vice President, Secretary and Director, Federated Investors, Inc.; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Director,
Federated Services Company; Director, Federated Securities Corp.
William D. Dawson, III
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 3, 1949
Chief Investment Officer
Chief Investment Officer of the Fund and various other Funds in the Federated
Fund Complex; Executive Vice President, Federated Investment Counseling,
Federated Global Research Corp., Federated Advisers, Federated Management,
Federated Research, and Passport Research, Ltd.; Registered Representative,
Federated Securities Corp.; Portfolio Manager, Federated Administrative
Services; Vice President, Federated Investors, Inc.
Kathleen M. Foody-Malus
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 26, 1960
Vice President
Senior Vice President, Federated Advisers.
Richard J. Thomas
Federated Investors Tower
Pittsburgh, PA
Birthdate: June 17, 1954
Treasurer
Treasurer of the Federated Fund Complex; Vice President - Funds Financial
Services Division, Federated Investors, Inc.
None of the Officers of the Fund received salaries from the Fund during
the fiscal year ended February 28, 1999.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
The Fund is not required, and does not intend, to hold regular annual
meetings of shareholders. Shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for the next meeting of
shareholders should send their written proposals to Federated Adjustable Rate
U.S. Government Fund, Inc., Federated Investors Funds, 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-7000, so that they are received within a
reasonable time before any such meeting.
No business other than the matters described above is expected to come
before the Annual Meeting, but should any other matter requiring a vote of
shareholders arise, including any question as to an adjournment or postponement
of the Annual Meeting, the persons named on the enclosed proxy card will vote on
such matters according to their best judgment in the interests of the Fund.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN
THE UNITED STATES.
By Order of the Board of Directors,
John W. McGonigle
Secretary
April 29, 1999
<PAGE>
FEDERATED ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC.
INVESTMENT ADVISER
FEDERATED ADVISERS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
DISTRIBUTOR
FEDERATED SECURITIES CORP.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
ADMINISTRATOR
FEDERATED SERVICES COMPANY
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Cusip
(_____/99)
<PAGE>
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned Shareholders of
Federated Adjustable Rate U.S. Government Fund, Inc. (the "Fund") hereby appoint
Patricia F. Conner, Gail Cagney, William Haas, Susan M. Jones, and Ann M.
Scanlon, or any one of them, true and lawful attorneys, with the power of
substitution of each, to vote all shares of the Fund which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held on June 30,
1999, at 5800 Corporate Drive, Pittsburgh, Pennsylvania, at 2:00 p.m., and at
any adjournment thereof.
The attorneys named will vote the shares represented by this proxy in accordance
with the choices made on this ballot. If no choice is indicated as to the item,
this proxy will be voted affirmatively on the matters. Discretionary authority
is hereby conferred as to all other matters as may properly come before the
Annual Meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF FEDERATED
ADJUSTABLE RATE U.S. GOVERNMENT FUND, INC. THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSALS.
BY CHECKING THE BOX "FOR" BELOW, YOU WILL VOTE TO APPROVE EACH OF THE PROPOSED
ITEMS IN THIS PROXY, AND TO ELECT EACH OF THE NOMINEES AS DIRECTORS OF THE FUND
FOR [ ]
PROPOSAL 1 TO ELECT THOMAS G. BIGLEY, NICHOLAS P. CONSTANTAKIS, JOHN F.
CUNNINGHAM, J. CHRISTOPHER DONAHUE, CHARLES F. MANSFIELD, JR.,
JOHN E. MURRAY, JR. AND JOHN S. WALSH AS DIRECTORS OF THE FUND
FOR [ ]
AGAINST [ ]
WITHHOLD AUTHORITY
TO VOTE [ ]
FOR ALL EXCEPT [ ]
If you do not wish your shares to be voted "FOR" a
particular nominee, mark the "For All Except" box and
strike a line through the name of each nominee for
whom you are NOT voting. Your shares will be voted for
the remaining nominees.
PROPOSAL 2 TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS THE FUND'S
INDEPENDENT AUDITORS
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
PROPOSAL 3 TO MAKE CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT POLICIES:
3(A) TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY REGARDING
DIVERSIFICATION
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
3(B) TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING BORROWING MONEY AND ISSUING SENIOR
SECURITIES FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(C) TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENTS IN REAL ESTATE FOR [ ]
AGAINST [ ] ABSTAIN [ ]
3(D) TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENTS IN COMMODITIES FOR [ ]
AGAINST [ ] ABSTAIN [ ]
3(E) TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING UNDERWRITING SECURITIES FOR [ ] AGAINST [
] ABSTAIN [ ]
3(F) TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING LENDING BY THE FUND FOR [ ] AGAINST [ ]
ABSTAIN [ ]
3(G) TO AMEND THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING PERMISSIBLE INVESTMENTS FOR [ ] AGAINST [
] ABSTAIN [ ]
3(H) TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING BUYING
SECURITIES ON MARGIN FOR [ ] AGAINST [ ] ABSTAIN [
]
3(I) TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY ON PLEDGING ASSETS
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(J) TO ELIMINATE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON
INVESTING IN RESTRICTED SECURITIES, AND TO AMEND, AND TO MAKE
NON-FUNDAMENTAL, THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTING IN ILLIQUID SECURITIES
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
3(K) TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING INVESTING
IN OTHER INVESTMENT COMPANIES FOR [ ] AGAINST [ ]
ABSTAIN [ ]
3(L) TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING COLLATERALIZED MORTGAGE
OBLIGATIONS FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(M) TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICIES REGARDING DOLLAR ROLL
TRANSACTIONS FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(N) TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICIES REGARDING SECURITIES LENDING
ACTIVITIES FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(O) TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING REPURCHASE AGREEMENT
TRANSACTIONS FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(P) TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING REVERSE REPURCHASE
AGREEMENTS FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(Q) TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING INVESTMENTS IN STRIPPED
MORTGAGE SECURITIES FOR [ ] AGAINST [ ] ABSTAIN [ ]
3(R) TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE FUND'S
FUNDAMENTAL INVESTMENT POLICY REGARDING WHEN-ISSUED
AND DELAYED DELIVERY TRANSACTIONS FOR [ ] AGAINST [
] ABSTAIN [ ]
3(S) TO MAKE NON-FUNDAMENTAL THE FUND'S FUNDAMENTAL
INVESTMENT POLICY REGARDING TEMPORARY INVESTMENTS
FOR [ ] AGAINST [ ] ABSTAIN [ ]
PROPOSAL 4 TO ELIMINATE CERTAIN OF THE FUND'S FUNDAMENTAL INVESTMENT POLICIES:
4(A) TO REMOVE THE FUND'S FUNDAMENTAL INVESTMENT POLICY
ON INVESTING IN OIL, GAS AND MINERALS FOR [ ]
AGAINST [ ] ABSTAIN [ ]
4(B) TO REMOVE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING
IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND BOARD
MEMBERS
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
4(C) TO REMOVE THE FUND'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING
IN NEW ISSUERS
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
4(D) TO REMOVE THE FUND'S FUNDAMENTAL INVESTMENT POLICY
ON SELLING SECURITIES SHORT FOR [ ] AGAINST [ ]
ABSTAIN [ ]
4(E) TO REMOVE THE FUND'S FUNDAMENTAL INVESTMENT POLICY
REGARDING TRADING PORTFOLIO SECURITIES FOR [ ]
AGAINST [ ] ABSTAIN [ ]
PROPOSAL 5 TO APPROVE AMENDMENTS TO THE FUND'S ARTICLES OF INCORPORATION TO
REQUIRE THE APPROVAL OF A "1940 ACT" MAJORITY OF SHAREHOLDERS IN THE
EVENT OF THE SALE OR CONVEYANCE OF THE ASSETS OF THE FUND TO ANOTHER
FUND OR CORPORATION
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
YOUR VOTE IS IMPORTANT
Please complete, sign
and return this card
as soon as possible.
Dated
Signature
Signature (Joint Owners)
Please sign this proxy exactly as your name appears on the books of the Fund.
Joint owners should each sign personally. Directors and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
YOU MAY ALSO VOTE YOUR SHARES BY TOUCHTONE PHONE BY CALLING 1-800-690-6903,
OR THROUGH THE INTERNET AT WWW.PROXYVOTE.COM.
