LIMITED
MATURITY
GOVERNMENT
FUND
SEMI-ANNUAL REPORT AND
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 20, 1993
July 31, 1994
[logo]
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
338319601
G00280-01 (7/94)
LIMITED MATURITY GOVERNMENT FUND
SELECT SHARES
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT AND SUPPLEMENT TO PROSPECTUS DATED DECEMBER 20, 1993
A. Please insert the following "Financial Highlights" table as page 2 of the
prospectus following the "Summary of Fund Expenses" and before the section
entitled "General Information." In addition, please add the heading
"Financial Highlights" to the Table of Contents page after the heading
"Summary of Fund Expenses."
LIMITED MATURITY GOVERNMENT FUND
SELECT SHARES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1994**
<S> <C>
- ---------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
- ----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------
Net investment income 0.17
- ----------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.39)
- ---------------------------------------------------------------------------------------------- -------------------
Total from investment operations (0.22)
- ---------------------------------------------------------------------------------------------- -------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.17)
- ---------------------------------------------------------------------------------------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 9.61
- ---------------------------------------------------------------------------------------------- -------------------
TOTAL RETURN* (2.13)%
- ----------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------
Expenses 1.00%(a)
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Net investment income 5.02%(a)
- ----------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 2.30%(a)
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SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $3,985
- ----------------------------------------------------------------------------------------------
Portfolio turnover rate 87%
- ----------------------------------------------------------------------------------------------
</TABLE>
* Based on net asset value, which does not reflect sales load or contingent
deferred sales charge, if applicable.
** Reflects operations for the period from January 20, 1994 (date of initial
public investment) to May 31, 1994 (unaudited).
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
B. Please remove the section entitled "Dollar Roll Transactions" on page 7 of
the prospectus and delete its reference from the Table of Contents.
C. Please replace the second bullet point of the section entitled "Investment
Limitations", on page 7 of the prospectus, with the following:
" with respect to 75% of the value of its total assets, invest more than 5% in
securities of any one issuer other than cash, cash items or securities issued
or guaranteed by the government of the United States, its agencies, or
instrumentalities and repurchase agreements collateralized by such securities,
or acquire more than 10% of the outstanding voting securities of any issuer."
D. Please replace the final paragraph of the section entitled "Directly by
Mail", which begins on page 8 of the prospectus, with the following:
"Purchases by mail are considered received after payment by check is converted
by the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank"), into federal funds. This is generally the next business day after State
Street Bank receives the check."
E. Please delete the section entitled "Redemption Before Purchase Instruments
Clear" on page 13 of the prospectus and delete its reference from the
Table of Contents.
F. Please delete the first paragraph of the section entitled "Portfolio
Managers' Backgrounds" on page 14 of the prospectus and replace it with
the following:
"PORTFOLIO MANAGERS' BACKGROUNDS. Joseph M. Balestrino is the Fund's portfolio
manager and Susan M. Nason and Deborah A. Cunningham are the Fund's co-portfolio
managers. Mr. Balestrino has been the Fund's manager since December, 1993. Mr.
Balestrino joined Federated Investors in 1986 and has been an Assistant Vice
President of the Fund's investment adviser since 1991. Mr. Balestrino served as
an Investment Analyst of the investment adviser from 1989 until 1991, and from
1986 until 1989 he acted as Project Manager in the Product Development
Department. Mr. Balestrino is a Chartered Financial Analyst and received his
M.A. in Urban and Regional Planning from the University of Pittsburgh."
G. Please replace the first four paragraphs of the section entitled
"Distribution Plan", which begins on page 14 of the prospectus, with the
following. Also, change the entry in the Table of Contents to reflect the
section's new name.
"DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the 'Distribution Plan'),
the Fund may pay to the distributor an amount, computed at an annual rate of
0.75 of 1% of the average daily net asset value of the Shares to finance any
activity which is principally intended to result in the sale of Shares subject
to the Distribution Plan. The distributor may select financial institutions such
as banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales support services as agents for their clients or
customers.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amount or may earn a profit from future payments made by the Fund
under the Distribution Plan.
In addition, the Fund has adopted a Shareholder Services Plan (the 'Services
Plan') under which it may make payments up to 0.25 of 1% of the average daily
net asset value of the Shares to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ('shareholder
services'). The Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Fund and Federated Shareholder
Services."
H. Please insert the following after the new section entitled "Distribution
and Shareholder Services Plans" which begins on page 14 of the prospectus.
Also, insert the heading "Other Payments to Financial Institutions" into
the Table of Contents immediately following the heading "Distribution and
Shareholder Services Plans."
"OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
the distributor may offer to pay a fee from its own assets to financial
institutions as financial assistance for providing substantial marketing and
sales support. The support may include participating in sales, educational and
training seminars at recreational-type facilities, providing sales literature,
and engineering computer software programs that emphasize the attributes of the
Fund. Such assistance will be predicated upon the amount of Shares the financial
institution sells or may sell, and/or upon the type and nature of sales or
marketing support furnished by the financial institution. Any payments made by
the distributor may be reimbursed by the Fund's investment adviser or its
affiliates."
I. Please replace the section entitled "Administrative Services", on page 15
of the prospectus, with the following:
"ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee."
J. Please delete the section entitled "Shareholder Services Plan" on page 15
of the prospectus and delete its reference from the Table of Contents.
K. Please change the references to the Fund's legal counsel to "Dickstein,
Shapiro & Morin, L.L.P." on page 15 and the inside back cover of the
prospectus.
L. Please add the following as the last sentence of the first paragraph in
the section entitled "Voting Rights" on page 16 of the prospectus:
"As of July 1, 1994, Kidd Qtip Trust owned 26.9% of the voting securities of the
Fund, and, therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders."
M. Please insert the following financial statements beginning as page 18 of
the prospectus. In addition, please add the heading "Financial Statements"
to the Table of Contents page immediately before "Addresses."
LIMITED MATURITY GOVERNMENT FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ------------- ------------------------------------------------------------------------------------ -------------
CORPORATE BONDS--27.9%
- ---------------------------------------------------------------------------------------------------
AUTOMOTIVE--5.1%
------------------------------------------------------------------------------------
$ 100,000 Arvin Industries, Inc., 6.875%, 2/15/2001 $ 93,472
------------------------------------------------------------------------------------
100,000 Chrysler Corp., Note, 10.40%, 8/1/99 109,412
------------------------------------------------------------------------------------ -------------
Total 202,884
------------------------------------------------------------------------------------ -------------
BANKING--2.5%
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100,000 Chase Manhattan Corp., FRN, 5.25%*, 12/5/2009 97,625
------------------------------------------------------------------------------------ -------------
FOREST PRODUCTS--2.6%
------------------------------------------------------------------------------------
100,000 Georgia-Pacific Corp., Note, 10.125%, 5/15/2000 103,674
------------------------------------------------------------------------------------ -------------
INDUSTRIAL PRODUCTS & EQUIPMENT--2.7%
------------------------------------------------------------------------------------
100,000 Varity Corp., Senior Note, 11.375%, 11/15/98 108,500
------------------------------------------------------------------------------------ -------------
LEISURE & ENTERTAINMENT--3.9%
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150,000 Eastman Kodak Co., 9.125%, 3/1/98 154,479
------------------------------------------------------------------------------------ -------------
OIL & GAS--3.2%
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123,000 Tennessee Gas Pipeline, Deb., 9.25%, 5/15/96 128,502
------------------------------------------------------------------------------------ -------------
PRINTING & PUBLISHING--5.2%
------------------------------------------------------------------------------------
100,000 News American Holdings, Sr. Note, 9.125%, 10/15/99 104,095
------------------------------------------------------------------------------------
100,000 Valassis Inserts, Inc., Sr. Note, 8.875%, 3/15/99 102,244
------------------------------------------------------------------------------------ -------------
Total 206,339
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SOVEREIGN GOVERNMENT--2.7%
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100,000 Province of Manitoba, Deb., 9.50%, 10/1/2000 109,505
------------------------------------------------------------------------------------ -------------
TOTAL CORPORATE BONDS (IDENTIFIED COST $1,125,341) 1,111,508
------------------------------------------------------------------------------------ -------------
GOVERNMENT AGENCY--66.5%
------------------------------------------------------------------------------------
263,297 Federal Home Loan Mortgage Corp., Pool M903309, 5.50%,12/1/98 252,847
------------------------------------------------------------------------------------
2,322,868 Federal National Mortgage Association, Pool 142402, 5.40%, 9/1/2019 2,398,245
------------------------------------------------------------------------------------ -------------
Total 2,651,092
------------------------------------------------------------------------------------ -------------
NON-GOVERNMENT AGENCY--1.7%
------------------------------------------------------------------------------------
68,523 Securitized Asset Sales, Inc., 1994-1, Class A3, 6.25%, 2/25/2004 66,345
------------------------------------------------------------------------------------ -------------
TOTAL MORTGAGE-BACKED SECURITIES (IDENTIFIED COST $2,714,386) 2,717,437
------------------------------------------------------------------------------------ -------------
**REPURCHASE AGREEMENT--6.6%
- ---------------------------------------------------------------------------------------------------
265,000 J.P. Morgan Securities, Inc., 4.27%, dated 5/31/94, due 6/1/94
(at amortized cost) (Note 2B) 265,000
------------------------------------------------------------------------------------ -------------
TOTAL INVESTMENTS (IDENTIFIED COST $4,104,727) $ 4,093,945\
------------------------------------------------------------------------------------ -------------
</TABLE>
* Denotes Variable Rate and Floating Rate Obligations for which the current
rate and next reset date is shown.
** The repurchase agreement is fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
\ The cost for federal tax purposes amounts to $4,104,727. The net unrealized
depreciation of investments on a federal tax basis amounts to $10,782, which
is comprised of $18,995 appreciation and $29,777 depreciation at May 31, 1994.
Note: The categories of investments are shown as a percentage of net assets
($3,985,260) at
May 31, 1994.
The following abbreviation is used in this portfolio:
FRN -- Floating Rate Note
(See Notes which are an integral part of the Financial Statements)
LIMITED MATURITY GOVERNMENT FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value (Note 2A) (identified and tax cost; $4,104,727) $ 4,093,945
- ---------------------------------------------------------------------------------------------------
Cash 5,295
- ---------------------------------------------------------------------------------------------------
Interest receivable 28,262
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Receivable from adviser 7,500
- ---------------------------------------------------------------------------------------------------
Receivable for capital stock 961
- ---------------------------------------------------------------------------------------------------
Prepaid expenses 9,497
- --------------------------------------------------------------------------------------------------- -------------
Total assets 4,145,460
- ---------------------------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------------------------
Payable for investments purchased $ 104,218
- --------------------------------------------------------------------------------------
Payable for capital stock 50,682
- --------------------------------------------------------------------------------------
Dividends payable 3,764
- --------------------------------------------------------------------------------------
Accrued expenses 1,536
- -------------------------------------------------------------------------------------- -----------
Total liabilities 160,200
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS for 414,521 shares of capital stock outstanding $ 3,985,260
- --------------------------------------------------------------------------------------------------- -------------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------------------------
Paid-in capital $ 4,094,635
- ---------------------------------------------------------------------------------------------------
Accumulated undistributed net realized gain (loss) on investments (98,593)
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments (10,782)
- --------------------------------------------------------------------------------------------------- -------------
Total Net Assets $ 3,985,260
- --------------------------------------------------------------------------------------------------- -------------
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PRICE PER SHARE:
($3,985,260 / 414,521 shares of capital stock outstanding) $9.61
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIMITED MATURITY GOVERNMENT FUND
STATEMENT OF OPERATIONS
PERIOD ENDED MAY 31, 1994*
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------------------------
Interest income (Note 2C) $ 56,316
- ---------------------------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 6,548
- ----------------------------------------------------------------------------------------
Custodian and portfolio accounting fees 9,625
- ----------------------------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 1,600
- ----------------------------------------------------------------------------------------
Legal fees 625
- ----------------------------------------------------------------------------------------
Distribution services fee (Note 4) 7,016
- ----------------------------------------------------------------------------------------
Printing and postage 750
- ----------------------------------------------------------------------------------------
Registration fees 1,750
- ----------------------------------------------------------------------------------------
Shareholder services fee (Note 4) 1,963
- ----------------------------------------------------------------------------------------
Miscellaneous 1,025
- ---------------------------------------------------------------------------------------- ---------
Total expenses 30,902
- ----------------------------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $ 6,548
- -----------------------------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 15,000 21,548
- ----------------------------------------------------------------------------- --------- ---------
Net expenses 9,354
- --------------------------------------------------------------------------------------------------- -----------
Net investment income 46,962
- --------------------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (identified cost basis) (98,593)
- ---------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (10,782)
- --------------------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (109,375)
- --------------------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ (62,413)
- --------------------------------------------------------------------------------------------------- -----------
</TABLE>
*For the period from January 20, 1994 (date of initial public investment) to May
31, 1994.
(See Notes which are an integral part of the Financial Statements)
LIMITED MATURITY GOVERNMENT FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
MAY 31, 1994*
(UNAUDITED)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -----------------------------------------------------------------------------------------------
OPERATIONS--
- -----------------------------------------------------------------------------------------------
Net investment income $ 46,962
- -----------------------------------------------------------------------------------------------
Net realized gain (loss) on investments ($98,593 net loss, as computed for federal income tax
purposes) (98,593)
- -----------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (10,782)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from operations (62,413)
- ----------------------------------------------------------------------------------------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- -----------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (46,962)
- ----------------------------------------------------------------------------------------------- -----------------
CAPITAL STOCK TRANSACTIONS (NOTE 3)--
- -----------------------------------------------------------------------------------------------
Proceeds from sale of shares 5,561,655
- -----------------------------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of dividends declared 24,419
- -----------------------------------------------------------------------------------------------
Cost of shares redeemed (1,491,439)
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets resulting from Fund share transactions 4,094,635
- ----------------------------------------------------------------------------------------------- -----------------
Change in net assets 3,985,260
- -----------------------------------------------------------------------------------------------
NET ASSETS:
- -----------------------------------------------------------------------------------------------
Beginning of period --
- ----------------------------------------------------------------------------------------------- -----------------
End of period $ 3,985,260
- ----------------------------------------------------------------------------------------------- -----------------
* For the period from January 20, 1994 (date of initial public investment) to May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
</TABLE>
LIMITED MATURITY GOVERNMENT FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Fixed Income Securities, Inc. (the "Corporation") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. The Corporation consists of five diversified
portfolios. The financial statements included herein present only those of
Limited Maturity Government Fund (the "Fund"). The financial statements of the
other portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--U.S. government obligations are generally valued at
the mean between the over-the-counter bid and asked prices as furnished by
an independent pricing service. Corporate bonds (and other fixed-income and
asset backed securities) are valued at the last sale price reported on
national securities exchanges on that day, if available. Otherwise,
corporate bonds (and other fixed-income and asset backed securities) and
short-term obligations are valued at the prices provided by an independent
pricing service. Short-term securities with remaining maturities of sixty
days or less at the time of purchase may be stated at amortized cost, which
approximates value.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals the principal amount of the repurchase agreement, including
accrued interest.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund adviser to be creditworthy pursuant to guidelines established
by the Board of Directors ("Directors"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Fund could receive less than the repurchase price on the
sale of collateral securities.
LIMITED MATURITY GOVERNMENT FUND
- --------------------------------------------------------------------------------
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
(3) CAPITAL STOCK
At May 31, 1994, there were 10,000,000,000 shares of $0.001 par value capital
stock authorized. Of these shares, 1,000,000,000 have been designated as shares
of the Fund. Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
NOVEMBER 30, 1994*
<S> <C>
Shares sold 566,671
- ----------------------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,535
- ----------------------------------------------------------------------------------------
Shares redeemed (154,685)
- ---------------------------------------------------------------------------------------- ------------------------
Net change resulting from capital stock transactions 414,521
- ---------------------------------------------------------------------------------------- ------------------------
</TABLE>
* For the period from January 20, 1994 (date of initial public investment) to
May 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.70 of 1% of the Fund's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the FAS fee is based
on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors for the period. The
administrative fee received during any fiscal year shall be at least $125,000
per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION AND SHAREHOLDER SERVICES FEE--The Fund has adopted a Distribution
Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plan, the Fund will compensate Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur distribution expenses up to .75 of 1% of the average daily net assets of
the Fund, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services ("FSS") the Fund will pay FSS up to .25 of 1% of the average net assets
of the Fund for the period. This fee is to obtain certain personal services for
shareholders and the maintenance of shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type and number of accounts and transactions
made by shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($33,768) and start-up
administrative service expenses ($31,506) incurred by the Fund were borne
initially by Adviser. The Fund has agreed to reimburse the Adviser for the
organizational expenses and start-up administrative expenses during the five
year period following December 20, 1993 (date the Fund first became effective).
Certain of the Officers and Directors of the Corporation are Officers and
Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term obligations, for the
period ended
May 31, 1994 were as follows:
<TABLE>
<S> <C>
PURCHASES $ 6,040,135
- --------------------------------------------------------------------------------------------------- -------------
SALES $ 2,053,913
- --------------------------------------------------------------------------------------------------- -------------
</TABLE>
DIRECTORS OFFICERS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Richard B. Fisher
James E. Dowd President
Lawrence D. Ellis, M.D. J. Christopher Donahue
Richard B. Fisher Vice President
Edward L. Flaherty, Jr. Edward C. Gonzales
Peter E. Madden Vice President and Treasurer
Gregor F. Meyer John W. McGonigle
Wesley W. Posvar Vice President and Secretary
Marjorie P. Smuts David M. Taylor
Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not obligations of or insured by any bank, nor are they insured
by the federal government or any of its agencies. Investment in these shares
involves risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded
or accompanied by the Fund's prospectus, which contains facts concerning its
objective and policies, management fees, expenses and other information.
LIMITED MATURITY GOVERNMENT FUND
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
SELECT SHARES
PROSPECTUS
The Select Shares of Limited Maturity Government Fund (the "Fund"), represent
interests in a diversified investment portfolio of Fixed Income Securities, Inc.
(the "Corporation"), an open-end, management investment company (a mutual fund).
The investment objective of the Fund is to seek a high level of current income
consistent with minimum fluctuation in principal. The Fund's weighted-average
portfolio life is limited to five years or less.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in Select Shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information for Select Shares
dated December 20, 1993, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is incorporated
by reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge by calling 1-800-235-4669. To obtain other
information or to make inquiries about the Fund, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated December 20, 1993
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
U.S. Government Securities 3
Asset-Backed Securities 4
Non-Mortgage Related
Asset-Backed Securities 4
Mortgage-Related Asset-Backed Securities 4
Average Life 5
Corporate Debt Obligations 5
Floating Rate Corporate Debt Obligations 5
Fixed Rate Corporate Debt Obligations 5
Demand Features 5
Financial Futures and Options on Futures 6
Risks 6
Restricted and Illiquid Securities 6
Repurchase Agreements 6
Dollar Roll Transactions 7
Lending of Portfolio Securities 7
When-Issued and Delayed
Delivery Transactions 7
Investment Limitations 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN SELECT SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through a Financial Institution 8
Directly by Mail 8
Directly by Wire 9
Minimum Investment Required 9
What Shares Cost 9
Systematic Investment Program 9
Certificates and Confirmations 9
Dividends and Distributions 9
Retirement Plans 10
EXCHANGE PRIVILEGE 10
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Requirements for Exchange 10
Tax Consequences 10
Making an Exchange 10
Telephone Instructions 11
REDEEMING SELECT SHARES 11
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Through a Financial Institution 11
Directly by Mail 12
Signatures 12
Receiving Payment 12
By Check 12
By Wire 12
Systematic Withdrawal Program 12
Redemption Before Purchase
Instruments Clear 13
Accounts with Low Balances 13
FIXED INCOME SECURITIES, INC. INFORMATION 13
- ------------------------------------------------------
Management of the Corporation 13
Board of Directors 13
Investment Adviser 13
Advisory Fees 13
Adviser's Background 13
Portfolio Managers' Backgrounds 14
Distribution of Fund Shares 14
Distribution Plan 14
Administration of the Fund 15
Administrative Services 15
Shareholder Services Plan 15
Custodian 15
Transfer Agent and Dividend
Disbursing Agent 15
Legal Counsel 15
Independent Auditors 16
Expenses of the Fund 16
SHAREHOLDER INFORMATION 16
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Voting Rights 16
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
Pennsylvania Corporate and
Personal Property Taxes 17
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SELECT SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable)................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
ANNUAL SELECT SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver) (1)................................................................ 0.28%
12b-1 Fee........................................................................................ 0.75%
Other Expenses................................................................................... 0.57%
Shareholder Servicing Fee.................................................................... 0.25%
Total Select Shares Operating Expenses (2).............................................. 1.60%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee is 0.70%.
(2) The Total Select Shares Operating Expenses are estimated to be 2.02% absent
the anticipated voluntary waiver of a portion of the management fee.
* Total Select Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending November 30, 1994.
During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN SELECT SHARES." AND "FIXED INCOME SECURITIES, INC.
INFORMATION." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales charge permitted under the rules of the National
Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period.................................................. $16 $51
</TABLE>
As noted in the table above, the Fund charges no redemption fees.
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING NOVEMBER
30, 1994.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Corporation was incorporated under the laws of the State of Maryland on
October 15, 1991. The Articles of Incorporation permit the Corporation to offer
separate portfolios and classes of shares. With respect to this Fund, as of the
date of this prospectus, the Board of Directors ("Directors") have established
one class of shares known as Select Shares ("Shares").
The Fund, which is one of four separate portfolios which have been established
by the Directors, is designed for investors seeking current income through a
professionally managed, diversified portfolio investing primarily in U.S.
government obligations, corporate debt obligations, and asset-backed securities.
A minimum initial investment of $1,500 is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Fund.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek a high level of current income
consistent with minimum fluctuation in principal. This investment objective
cannot be changed without approval of shareholders.
Although certain portfolio instruments held by the Fund are collateralized by
specific assets, the Fund's shares themselves are not secured. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in U.S.
government securities, the weighted average portfolio life of which at all times
will be five years or less. Under normal market conditions, the Fund will invest
at least 65% of the value of its total assets in securities which are issued or
guaranteed by the U.S. government, its agencies or instrumentalities. Unless
indicated otherwise, these investment policies, and the investment policies
described below may be changed by the Board of Directors without the approval of
shareholders. Shareholders will be notified before any material change in the
investment policies becomes effective.
The net asset value of the Fund is expected to fluctuate with changes in
interest rates and bond market conditions, although this fluctuation should be
more moderate than that of a fund with a longer average portfolio life. The
adviser, however, will attempt to minimize principal fluctuation through, among
other things, diversification, careful credit analysis and security selection,
and adjustments of the Fund's average portfolio life. In periods of rising
interest rates and falling bond prices, the adviser may shorten the Fund's
average life to minimize the effect of declining bond values on the Fund's net
asset value. Conversely, during times of falling interest rates and rising
prices a longer average life to five years may be sought.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally managed,
diversified portfolio consisting of U.S. government obligations. The Fund may
also invest in asset-backed securities, corporate debt obligations, and money
market instruments.
The securities in which the Fund invests principally are:
direct obligations of the U.S. Treasury such as U.S. Treasury bills, notes
and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Federal Home Loan Banks, Federal National
Mortgage Association ("FNMA"), Government National Mortgage Association
("GNMA"), Federal Farm Credit Banks, Tennessee Valley Authority,
Export-Import Bank of the United States, Commodity Credit Corporation,
Federal Financing Bank, Student Loan Marketing Association, Federal Home
Loan Mortgage Corporation ("FHLMC"), or National Credit Union
Administration.
The Fund may also invest in:
asset-backed securities rated in one of the four highest categories by a
nationally recognized statistical rating organization, or which are of
comparable quality in the judgment of the adviser;
domestic issues of corporate debt obligations having floating or fixed
rates of interest and rated in one of the four highest categories by a
nationally recognized statistical rating organization rated Aaa, Aa, A, or
Baa by Moody's Investors Service, Inc. ("Moody's"); AAA, AA, A, or BBB by
Standard & Poor's Corporation ("Standard & Poor's"), or AAA, AA, A, or BBB
by Fitch Investors Service, Inc. ("Fitch"), or which are of comparable
quality in the judgment of the adviser. Bonds rated BBB by Standard &
Poor's or Baa by Moody's have speculative characteristics. Changes in
economic conditions or other circumstances are more likely to lead to
weakened capacity to make principal and interest payments than higher
rated bonds;
rated commercial paper which matures in 270 days or less so long as at
least two ratings are quality ratings by nationally recognized statistical
rating organizations. Such ratings would include: Prime-1 or Prime-2 by
Moody's, A-1 or A-2 by Standard & Poor's, or F-1 or F-2 by Fitch;
time and savings deposits and bankers acceptances (including certificates
of deposit) in commercial or savings banks whose accounts are insured by
the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF"), both of which are administered by the Federal Deposit Insurance
Corporation ("FDIC"), including certificates of deposit issued by and
other time deposits in foreign branches of FDIC insured banks or who have
at least $100,000,000 in capital; and
repurchase agreements collateralized by eligible investments.
If a security's rating is reduced below the required minimum after the Fund has
purchased it, the Fund is not required to sell the security, but may consider
doing so.
U.S. GOVERNMENT SECURITIES. Some obligations issued or guaranteed by agencies
or instrumentalities of the U.S. government, such as Government National
Mortgage Association participation certificates, are backed by the full faith
and credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities, since it is not obligated to do so. These instrumentalities
are supported by:
the issuer's right to borrow an amount limited to specific line of credit
from the U.S. Treasury;
discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
ASSET-BACKED SECURITIES. Asset-backed securities are created by the
grouping of certain governmental, government related and private loans,
receivables and other lender assets into pools. Interests in these pools
are sold as individual securities. Payments from the asset pools may be
divided into several different tranches of debt securities, with some
tranches entitled to receive regular installments of principal and
interest, other tranches entitled to receive regular installments of
interest, with principal payable at maturity or upon specified call dates,
and other tranches only entitled to receive payments of principal and
accrued interest at maturity or upon specified call dates. Different
tranches of securities will bear different interest rates, which may be
fixed or floating.
Because the loans held in the asset pool often may be prepaid without
penalty or premium, asset-backed securities are generally subject to higher
prepayment risks than most other types of debt instruments. Prepayment
risks on mortgage securities tend to increase during periods of declining
mortgage interest rates, because many borrowers refinance their mortgages
to take advantage of the more favorable rates. Depending upon market
conditions, the yield that the Fund receives from the reinvestment of such
prepayments, or any scheduled principal payments, may be lower than the
yield on the original mortgage security. As a consequence, mortgage
securities may be a less effective means of "locking in" interest rates
than other types of debt securities having the same stated maturity and may
also have less potential for capital appreciation. For certain types of
asset pools, such as collateralized mortgage obligations, prepayments may
be allocated to one tranche of securities ahead of other tranches, in order
to reduce the risk of prepayment for the other tranches.
Prepayments may result in a capital loss to the Fund to the extent that the
prepaid mortgage securities were purchased at a market premium over their
stated amount. Conversely, the prepayment of mortgage securities purchased
at a market discount from their stated principal amount will accelerate the
recognition of interest income by the Fund, which would be taxed as
ordinary income when distributed to the shareholders.
The credit characteristics of asset-backed securities also differ in a
number of respects from those of traditional debt securities. The credit
quality of most asset-backed securities depends primarily upon the credit
quality of the assets underlying such securities, how well the entity
issuing the securities is insulated from the credit risk of the originator
or any other affiliated entities, and the amount and quality of any credit
enhancement to such securities.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES. The Fund may invest in
non-mortgage related asset-backed securities including, but not limited to,
interests in pools of receivables, such as credit card and accounts
receivable and motor vehicle and other installment purchase obligations and
leases. These securities may be in the form of pass-through instruments or
asset-backed obligations. The securities, all of which are issued by
non-governmental entities and carry no direct or indirect government
guarantee, are structurally similar to collateralized mortgage obligations
and mortgage pass-through securities.
MORTGAGE-RELATED ASSET-BACKED SECURITIES. The Fund may also invest in
various mortgage-related asset-backed securities. These types of
investments may include adjustable rate mortgage securities, collateralized
mortgage obligations, real estate mortgage investment conduits, or other
securities collateralized by or representing an interest in real estate
mortgages and securities whose interest and principal paying components are
separated (collectively, "mortgage securities"). Many mortgage securities
are issued or guaranteed by government agencies.
AVERAGE LIFE. Average life, as applicable to asset-backed securities, is
computed by multiplying each principal repayment by the time of payment (months
or years from the evaluation date), summing these products, and dividing the sum
by the total amount of principal repaid. The weighted-average life is calculated
by multiplying the maturity of each security in a given pool by its remaining
balance, summing the products, and dividing the result by the total remaining
balance.
CORPORATE DEBT OBLIGATIONS. The Fund invests in corporate debt obligations,
including corporate bonds, notes, and debentures, which may have floating or
fixed rates of interest.
FLOATING RATE CORPORATE DEBT OBLIGATIONS. The Fund expects to invest in
floating rate corporate debt obligations, including increasing rate securities.
Floating rate securities are generally offered at an initial interest rate which
is at or above prevailing market rates. The interest rate paid on these
securities is then reset periodically (commonly every 90 days) to an increment
over some predetermined interest rate index. Commonly utilized indices include
the three-month Treasury bill rate, the 180-day Treasury bill rate, the
one-month or three-month London Interbank Offered Rate (LIBOR), the prime rate
of a bank, the commercial paper rates, or the longer-term rates on U.S. Treasury
securities.
FIXED RATE CORPORATE DEBT OBLIGATIONS. The Fund will also invest in fixed rate
securities, including fixed rate securities with short-term characteristics.
Fixed rate securities with short-term characteristics are long-term debt
obligations but are treated in the market as having short maturities because
call features of the securities may make them callable within a short period of
time. A fixed rate security with short-term characteristics would include a
fixed income security priced close to call or redemption price or a fixed income
security approaching maturity, where the expectation of call or redemption is
high.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described above, behave
like short-term instruments in that the rate of interest they pay is subject to
periodic adjustments based on a designated interest rate index. Fixed rate
securities pay a fixed rate of interest and are more sensitive to fluctuating
interest rates. In periods of rising interest rates the value of a fixed rate
security is likely to fall. Fixed rate securities with short-term
characteristics are not subject to the same price volatility as fixed rate
securities without such characteristics. Therefore, they behave more like
floating rate securities with respect to price volatility.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period following
a demand by the Fund. The demand feature may be issued by the issuer of the
underlying securities, a dealer in the securities or by another third party, and
may not be transferred separately from the underlying security. The Fund uses
these arrangements to provide the Fund with liquidity and not to protect against
changes in the market value of the underlying securities. The bankruptcy,
receivership or default by the issuer of the demand feature, or a default on the
underlying security or other event that terminates the demand feature before its
exercise, will
adversely affect the liquidity of the underlying security. Demand features that
are exercisable even after a payment default on the underlying security are
treated as a form of credit enhancement.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts to hedge all or a portion of its portfolio against
changes in interest rates. Financial futures contracts call for the delivery of
particular debt instruments at a certain time in the future. The seller of the
contract agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of selling a futures contract at a
fixed price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets. When the Fund purchases a
futures contract, an amount of cash and U.S. Treasury securities, equal to the
underlying commodity value of the futures contract (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and thereby
insure that the use of such futures contract is unleveraged.
RISKS. When the Fund uses financial futures and options on financial futures as
hedging devices, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities to market
changes. In addition, the Fund's investment adviser could be incorrect in its
expectations about the direction or extent of market factors such as interest
rate movements. In these events, the Fund may lose money on the futures contract
or option. It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options transactions, there
is no assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular time. The
Fund's ability to establish and close out futures and options positions depends
on this secondary market.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restriction on resale under federal securities law. However, the Fund
will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of its net assets.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities.
DOLLAR ROLL TRANSACTIONS. In order to enhance portfolio returns and manage
prepayments risks, the Fund may engage in dollar roll transactions with respect
to mortgage securities issued by GNMA, FNMA, and FHLMC. In a dollar roll
transaction, the Fund sells a mortgage security to a financial institution, such
as a bank or broker/dealer, and simultaneously agrees to repurchase a
substantially similar (i.e., same type, coupon and maturity) security from the
institution at a later date at an agreed upon price. The mortgage securities
that are repurchased will bear the same interest rate as those sold, but
generally will be collateralized by different pools of mortgages with different
prepayment histories. During the period between the sale and repurchase, the
Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in short-term
instruments, and the income from the investments, together with any additional
fee income received on the sale, will generate income for the Fund exceeding the
yield. When the Fund enters into a dollar roll transaction, liquid assets of the
Fund, in a dollar amount sufficient to make payment for the obligations to be
repurchased, are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or a long-term basis up to
one-third of the value of its total assets to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines established
by the Directors. In these loan arrangements, the Fund will receive collateral
in the form of cash or U.S. government securities equal to at least 100% of the
value of the securities loaned.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. In when-issued and delayed delivery transactions, the Fund relies
on the seller to complete the transaction. The seller's failure to complete the
transaction may cause the Fund to miss a price or yield considered to be
advantageous.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings; or
with respect to 75% of the value of its total assets, invest more than 5%
in securities of any one issuer other than cash, cash items or securities
issued or guaranteed by the government of the United States, its agencies,
or instrumentalities and repurchase agreements collateralized by such
securities, (for purposes of this Fund, cash items means instruments
issued by a U.S. branch of a domestic bank or savings and loan having
capital surplus and undivided profits in excess of $100
million at the time of investment, or acquire more than 10% of the
outstanding voting securities of any issuer.)
The above investment limitations cannot be changed without shareholder approval.
The following investment limitation, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any material
change in this investment limitation becomes effective.
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers that have records of less than three years of continuous
operations including the operation of any predecessor.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per Share fluctuates. It is determined by dividing
the sum of the market value of all securities and all other assets, less
liabilities, by the number of Shares outstanding.
INVESTING IN SELECT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through an investment dealer who has a sales agreement with the
distributor, Federated Securities Corp., or directly from Federated Securities
Corp. either by mail or wire. The Fund reserves the right to reject any purchase
request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares of
the Fund. Orders through a financial institution are considered received when
the Fund is notified of the purchase order. Purchase orders through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be purchased at that day's price. Purchase orders through
other financial institutions must be received by the financial institution and
transmitted to the Fund before 4:00 p.m. (Eastern time) in order for shares to
be purchased at that day's price. It is the financial institution's
responsibility to transmit orders promptly. Certain financial institutions may
charge fees for services provided which may relate to the ownership of Shares.
This prospectus should, therefore, be read together with any agreement between
the customer and the institution with regard to services provided and the fees
charged for the services.
DIRECTLY BY MAIL. To purchase shares of the Fund by mail directly from
Federated Securities Corp.:
complete and sign the application available from the Fund;
enclose a check made payable to Limited Maturity Government Fund--Select
Shares; and
send both to State Street Bank and Trust Company, P.O. Box 8604, Boston,
Massachusetts 02266-8604.
Purchases by mail are considered received after payment by check is converted by
State Street Bank and Trust Company ("State Street Bank") into federal funds.
This is generally the next business day after State Street Bank receives the
check.
DIRECTLY BY WIRE. To purchase Shares directly from the distributor by wire once
an account has been established, call the Fund. All information needed will be
taken over the telephone, and the order is considered received when State Street
Bank receives payment by wire. Federal funds should be wired as follows: State
Street Bank and Trust Company, Boston, Massachusetts 02105; Attention: Mutual
Fund Servicing Division; For Credit to: Limited Maturity Government Fund--Select
Shares; Wire Order Number and/or Account Number. Shares cannot be purchased by
wire on days on which the New York Stock Exchange is closed and on federal
holidays restricting wire transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,500. An investment in an IRA
account requires a minimum initial investment of $50. Subsequent investments
must be in amounts of at least $100, except for an IRA account, which must be in
amounts of at least $50.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. The net asset value is determined at 4:00 p.m. (Eastern time), Monday
through Friday, except on: (i) days on which there are not sufficient changes in
the value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis. Under this program, funds may be automatically withdrawn
monthly from the shareholder's checking account maintained at an Automated
Clearing House ("ACH") member institution, and invested in shares at the net
asset value next determined after an order is received by State Street Bank. A
shareholder may apply for participation in this program through Federated
Securites Corp.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
on the application or by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly statements are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly. Distributions of any net realized
long-term capital gains will be made at least once every twelve months.
Dividends are automatically reinvested in additional Shares on payment dates at
net asset value, unless cash payments are requested by shareholders on the
application or by writing to Federated Securities Corp.
Shares purchased through a financial institution, for which payment by wire is
received by the transfer agent on the business day following the order, begin to
earn dividends on the day the wire payment is received. Otherwise, Shares
purchased by wire begin to earn dividends on the business day after wire payment
is received by the transfer agent Shares purchased by mail, or through a
financial institution, if the financial institution's payment is by check, begin
to earn dividends on the second business day after the check is received by the
transfer agent.
Shares earn dividends through the business day that proper written redemption
instructions are received by State Street Bank.
RETIREMENT PLANS
Shares can be purchased as an investment for retirement plans or for IRA
accounts. For further details, including prototype retirement plans, contact
Federated Securities Corp. and consult a tax adviser.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
In order to provide greater flexibility to Fund shareholders whose investment
objectives have changed, Select shareholders may exchange all or some of their
Shares for Select Shares of Liberty Municipal Income Fund, Fund for U.S.
Government Securities, and Liberty High Income Bond Fund, Inc. at net asset
value. Shareholders of Select Shares may also exchange into certain Federated
Funds which are sold with a sales charge or with no sales charge and which are
advised by subsidiaries or affiliates of Federated Investors. These exchanges
are made at net asset value plus any sales charge of the fund into which the
Shares are to be exchanged, if applicable. The Fund does not impose any
additional fees on exchanges.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
of at least $1,500. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in Select Shares of the other fund. The exchange privilege
may be modified or terminated at any time. Shareholders will be notified of the
modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses is available by
contacting the Fund.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for the Select Shares or certain Federated Funds may
be given in writing or by telephone. Written instructions may require a
signature guarantee. Shareholders of the Fund may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that an exchange request be made in writing and sent by overnight
mail to Boston Financial Data Services, Inc., Attention: Federated Division, Two
Heritage Drive, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the transfer agent. If the instructions are given by a broker, a
telephone authorization form completed by the broker must be on file with State
Street Bank. Shares may be exchanged between two funds by telephone only if the
two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the transfer agent and deposited to the shareholder's account
before being exchanged. Telephone exchange instructions are recorded and will be
binding upon the shareholder. Such instructions will be processed as of 4:00
P.M. (Eastern time) and must be received by the transfer agent before that time
for Shares to be exchanged the same day. Shareholders exchanging into a Fund
will not receive any dividend that is payable to shareholders of record on that
date. This privilege may be modified or terminated at any time. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
REDEEMING SELECT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at their net asset value next determined after the
transfer agent receives the redemption request. Redemptions will be made on days
on which the Fund computes its net asset value. Redemption requests must be
received in proper form and can be made through a financial institution, or
directly from the Fund by written request.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after the Fund receives the redemption
request from the financial institution. Redemption requests through a registered
broker/dealer must be received by the broker before 4:00 p.m. (Eastern time) and
must be transmitted by the broker to the Fund before 5:00 p.m. (Eastern time) in
order for Shares to be redeemed at that day's net asset value. Redemption
requests through other financial institutions must be received by the financial
institution and transmitted to the Fund before 4:00 p.m. (Eastern time) in order
for shares to be redeemed at that day's net asset value. The financial
institution is responsible for promptly submitting redemption requests and
providing proper written redemption instructions to the Fund. The financial
institution may charge customary fees and commissions for this service. If, at
any time, the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders will be promptly notified.
Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. Telephone redemption instructions
may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. In the event of drastic economic or market
changes, a shareholder may experience difficulty in redeeming by telephone. If
such a case should occur, another method of redemption, such as "Directly by
Mail," should be considered.
DIRECTLY BY MAIL
Shareholders may also redeem Shares by sending a written request to State Street
Bank and Trust Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. This
written request must include the shareholder's name, the Fund name, the account
number, and the share or dollar amount to be redeemed. Shares will be redeemed
at their net asset value next determined after State Street Bank receives the
redemption request.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders may call the Fund for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member firm of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT
BY CHECK. Normally, a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
written redemption request, provided the transfer agent has received
payment for Shares from the shareholder.
BY WIRE. Redemption requests will be wired the following business day.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive monthly or quarterly payments of a
predetermined amount may take advantage of the Systematic Withdrawal Program.
Under this program, Shares are redeemed to provide for periodic withdrawal
payments in an amount directed by the shareholder; the minimum withdrawal amount
is $100. Depending upon the amount of the withdrawal payments, the amount of
dividends paid and capital gains distributions with respect to shares, and the
fluctuation of the net asset value of Shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment in
the Fund.
For this reason, payments under this program should not be considered as yield
or income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account balance with a
value of at least $10,000 in the Fund.
A shareholder may apply for participation in this program through Federated
Securities Corp.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When Shares are purchased by check, or through ACH, the proceeds from the
redemption of those Shares are not available, and the Shares may not be
exchanged, until the Fund or its agents is reasonably certain that the purchase
check has cleared, which could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account, and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,500 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,500 because of changes in the Fund's net asset value.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
FIXED INCOME SECURITIES, INC. INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE CORPORATION
BOARD OF DIRECTORS. The Fund is managed by a Board of Directors. The Directors
are responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. The Executive Committee of the Board of Directors handles the
Directors' responsibilities between meetings of the Directors.
INVESTMENT ADVISER. Investment decisions for the Fund are made by Federated
Advisers, the Fund's investment adviser (the "Adviser"), subject to direction by
the Directors. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Fund's Adviser receives an annual investment advisory
fee equal to .70 of 1% of the Fund's average daily net assets. Under the
investment advisory contract, which provides for voluntary waivers of
expenses by the Adviser, the Adviser may voluntarily waive some or all of
its fee. The Adviser can terminate this voluntary waiver of some or all of
its advisory fee at any time at its sole discretion. The Adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife,
and Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee
of Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
PORTFOLIO MANAGERS' BACKGROUNDS. Gary J. Madich is the Fund's portfolio
manager and Susan M. Nason, Deborah A. Cunningham are the Fund's
co-portfolio managers. Gary J. Madich has been the Fund's portfolio manager
since its inception in October, 1993. Mr. Madich joined Federated Investors
in 1984 and has been a Senior Vice President of the Fund's investment
adviser since 1993. Mr. Madich served as a Vice President of the Fund's
investment adviser from 1988 until 1993. Mr. Madich is a Chartered
Financial Analyst and received his M.B.A. in Public Finance from the
University of Pittsburgh.
Ms. Nason has been the Fund's co-portfolio manager since its inception in
October, 1993. She joined Federated Investors in 1987 and has been a Vice
President of the Fund's investment adviser since 1993. Ms. Nason served as
an Assistant Vice President of the investment adviser from 1990 until 1992,
and from 1987 until 1990 she acted as an investment analyst. Ms. Nason is a
Chartered Financial Analyst and received her M.B.A. in Finance from
Carnegie Mellon University.
Deborah A. Cunningham has been the Fund's co-portfolio manager since its
inception in October, 1993. Ms. Cunningham joined Federated Investors in
1981 and has been a Vice President of the Fund's investment adviser since
1993. Ms. Cunningham served as an Assistant Vice President of the
investment adviser from 1989 until 1992, and from 1986 until 1989 she acted
as an investment analyst. Ms. Cunningham is a Chartered Financial Analyst
and received her M.S.B.A. in Finance from Robert Morris College.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for Shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with Rule 12b-1 under the Investment Company Act of 1940, as amended
(the "Plan"), the Fund will pay to Federated Securities Corp. an amount computed
at an annual rate of .75% of the average daily net asset value of the Fund to
finance any activity which is principally intended to result in the sale of
Shares.
The distributor may select financial institutions (such as a bank or an
investment dealer) to provide sales support services as agents for their clients
or customers who beneficially own Shares of the Fund.
Financial institutions will receive fees from the distributor based upon Shares
of the Fund owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act limits the ability of a depository institution (such as a
commercial bank or a savings and loan association) to become an underwriter or
distributor of securities. In the event the Glass-Steagall Act is deemed to
prohibit depository institutions from acting in the capacities described above
or should Congress relax current restrictions on depository institutions, the
Directors will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., which is a
subsidiary of Federated Investors, provides the Fund with the administrative
personnel and services necessary to operate the Fund. Such services include
shareholder servicing and certain legal and accounting services. Federated
Administrative Services, Inc. provides these at approximate cost.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to shares of the Fund. Under the Services
Plan, financial institutions will enter into shareholder service agreements with
the Fund to provide administrative support services to their customers who from
time to time may be owners of record or beneficial owners of shares of the Fund.
In return for providing these support services, a financial institution may
receive payments from the Fund at a rate not exceeding .25 of 1% of the average
daily net assets of the Fund beneficially owned by the financial institution's
customers for whom it is holder of record or with whom it has a servicing
relationship. These administrative services may include, but are not limited to,
the provision of personal services and maintenance of shareholder accounts.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
Holders of Shares pay their allocable portion of Fund and Corporation expenses.
The Corporation expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Corporation and
continuing its existence; registering the Corporation with federal and state
securities authorities; Directors' fees; auditors' fees; the cost of meetings of
Directors; legal fees of the Corporation; association membership dues and such
non-recurring and extraordinary items as may arise from time to time.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise from time to time.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share of the Fund is entitled to one vote in Director elections and other
matters submitted to shareholders for vote. All shares of all classes of each
portfolio in the Corporation have equal voting rights except that in matters
affecting only a particular fund or class, only shares of that fund or class are
entitled to vote.
As a Maryland corporation, the Fund is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Fund's operation and for the election of Directors under certain circumstances.
Directors may be removed by the Board of Directors or by shareholders at a
special meeting. A special meeting of shareholders shall be called by the
Directors upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held their shares. No federal income tax is due on
any distributions earned in an IRA
or qualified retirement plan until distributed, so long as such IRA or qualified
retirement plan meets the applicable requirements of the Internal Revenue Code.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
the Fund is subject to the Pennsylvania corporate franchise tax; and
Fund Shares are exempt from personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises the total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per Share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Limited Maturity Government Fund Federated Investors Tower
Select Shares Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 2500 One PPG Place
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
LIMITED MATURITY
GOVERNMENT FUND
SELECT SHARES
PROSPECTUS
A Diversified Portfolio of
Fixed Income Securities, Inc.,
An Open-End, Management
Investment Company
December 20, 1993
3092104A (12/93)
LIMITED MATURITY GOVERNMENT FUND
SELECT SHARES
(A PORTFOLIO OF FIXED INCOME SECURITIES, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Limited Maturity Government Fund (the "Fund") dated
December 20, 1993.
This Statement is not a prospectus itself. To receive a copy of the
prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated December 20, 1993
FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Adjustable Rate Mortgage Securities
("ARMS") 1
Collateralized Mortgage Obligations
("CMOs") 1
Real Estate Mortgage Investment Conduits
("REMICs") 1
Stripped Mortgage Securities 2
Resets of Interest 2
Caps and Floors 2
Non-Mortgage Related Asset-Backed Securities 2
Futures and Options Transactions 3
When-Issued and Delayed Delivery Transactions 4
Lending of Portfolio Securities 4
Restricted and Illiquid Securities 4
Repurchase Agreements 5
Portfolio Turnover 5
INVESTMENT LIMITATIONS 5
- ---------------------------------------------------------------
FIXED INCOME SECURITIES, INC. MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Directors 7
The Funds 8
Fund Ownership 9
Director Liability 9
INVESTMENT ADVISORY SERVICES 9
- ---------------------------------------------------------------
Adviser to the Fund 9
Advisory Fees 9
SHAREHOLDER SERVICING 10
- ---------------------------------------------------------------
ADMINISTRATIVE SERVICES 10
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 10
- ---------------------------------------------------------------
PURCHASING SELECT SHARES 10
- ---------------------------------------------------------------
Distribution Plan 10
DETERMINING NET ASSET VALUE 11
- ---------------------------------------------------------------
Determining Market Value of Securities 11
REDEEMING SELECT SHARES 11
- ---------------------------------------------------------------
Redemption in Kind 11
TAX STATUS 11
- ---------------------------------------------------------------
The Fund's Tax Status 11
Shareholders' Tax Status 11
TOTAL RETURN 12
- ---------------------------------------------------------------
YIELD 12
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 12
- ---------------------------------------------------------------
APPENDIX 13
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio of Fixed Income Securities, Inc. (the "Corporation").
The Corporation was incorporated under the laws of the State of Maryland on
October 15, 1991. Shares of the Fund are currently offered in one class, called
Select Shares.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The investment objective of the Fund is to seek a high level of current income
consistent with minimum fluctuation in principal. This investment objective
cannot be changed without approval of shareholders. The investment policies
stated below may be changed by the Board of Directors ("Directors") without
shareholder approval. Shareholders will be notified before any material change
in the investment policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests at least 65% of its assets in a portfolio of U.S. government
obligations. With respect to up to 35% of the assets of the Fund, the Fund will
invest in investment grade corporate debt obligations and asset-backed
securities. The corporate debt obligations and asset-backed securities in which
the Fund invests will be rated in one of the four highest categories by a
nationally recognized statistical rating organization. The investment portfolio
includes the following securities:
.U.S. government obligations, including U.S. Treasury bills, notes, and bonds,
and securities issued by agencies and instrumentalities of the U.S. government;
.corporate debt securities;
.asset-backed securities;
.repurchase agreements; and
.money market instruments and cash.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
ARMS are pass-through mortgage securities representing interests in adjustable
rather than fixed interest rate mortgages. The ARMS in which the Fund invests
are issued by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA"), and the Federal Home Loan Mortgage
Corporation ("FHLMC") and are actively traded. The underlying mortgages which
collateralize ARMS issued by GNMA are fully guaranteed by the Federal Housing
Administration ("FHA") or Veterans Administration ("VA"), while those
collateralizing ARMS issued by FHLMC or FNMA are typically conventional
residential mortgages conforming to strict underwriting size and maturity
constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
CMOs are bonds issued by single-purpose, stand-alone finance subsidiaries or
trusts of financial institutions, government agencies, investment bankers, or
companies related to the construction industry. CMOs purchased by the Fund may
be:
.collateralized by pools of mortgages in which each mortgage is guaranteed as to
payment of principal and interest by an agency or instrumentality of the U.S.
government;
.collateralized by pools of mortgages in which payment of principal and interest
is guaranteed by the issuer and such guarantee is collateralized by U.S.
government securities; or
.securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest is supported by the credit
of an agency or instrumentality of the U.S. government.
All CMOs purchased by the Fund are investment grade, as rated by a nationally
recognized statistical rating organization.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
REMICs are offerings of multiple class real estate mortgage-backed securities
which qualify and elect treatment as such under provisions of the Internal
Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages. Once
REMIC status is elected and obtained, the entity is not subject to federal
income taxation. Instead, income is passed through the entity and is taxed to
the person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interests," some of which may offer
adjustable rates of interest, and a single class of "residual interests." To
qualify as a REMIC, substantially all the assets of the entity must be in assets
directly or indirectly secured principally by real property.
STRIPPED MORTGAGE SECURITIES
The Fund may invest in stripped mortgage securities. Stripped mortgage
securities are derivative multiclass securities which may be issued by agencies
or instrumentalities of the U.S. government, or by private originators of, or
investors in, mortgage loans, such as savings and loan associations, mortgage
banks, commercial banks, investment banks, and special purpose subsidiaries of
the foregoing organizations. The market volatility of stripped mortgage
securities tends to be greater than the market volatility of the other types of
mortgage-related securities in which the Fund invests. Principal-only stripped
mortgage securities are used primarily to hedge against interest rate risk to
the capital assets of the Funds in a changing interest rate environment. If the
mortgage assets which underlie the stripped mortgage securities were to
experience greater than anticipated prepayments of principal, a Fund could fail
to fully recoup its initial investment in these securities, even if they are
rated in the highest rating categories (e.g., AAA or Aaa by S&P or Moody's,
respectively).
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the Fund invests
generally are readjusted at intervals of one year or less to an increment over
some predetermined interest rate index. There are two main categories of
indices: those based on U.S. Treasury securities and those derived from a
calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury note rates, the three-month Treasury bill rate, the
180-day Treasury bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London Interbank
Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper
rates. Some indices, such as the one-year constant maturity Treasury note rate,
closely mirror changes in market interest rate levels. Others tend to lag
changes in market rate levels and tend to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. Hence, ARMs which use indices that lag
changes in market rates should experience greater price volatility than
adjustable rate mortgage securities that closely mirror the market. Certain
residual interest tranches of CMOs may have adjustable interest rates that
deviate significantly from prevailing market rates, even after the interest rate
is reset, and are subject to correspondingly increased price volatility. In the
event the Fund purchases such residual interest mortgage securities, it will
factor in the increased interest and price volatility of such securities when
determining its dollar-weighted average duration.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in which
the Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval, and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the effective maturities
of the mortgage securities in which the Fund invests to be shorter than the
maturities stated in the underlying mortgages.
NON-MORTGAGE RELATED ASSET-BACKED SECURITIES
Non-mortgage related asset-backed securities present certain risks that are not
presented by mortgage-backed securities. Primarily, these securities do not have
the benefit of the same security interest in the related collateral. Credit card
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. Most issuers of asset-backed securities backed
by motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then registered because the owner and the obligor move to another state, such
re-registration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee with
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is a possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may attempt to hedge all or a portion of its portfolio by buying and
selling financial futures contracts, buying put options on portfolio securities
and listed put options on futures contracts, and writing call options on futures
contracts. The Fund may also write covered call options on portfolio securities
to attempt to increase its current income. The Fund currently does not intend to
invest more than 5% of its total assets in options transactions.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future. In the fixed
income securities market, price moves inversely to interest rates. A rise
in rates means a drop in price. Conversely, a drop in rates means a rise
in price. In order to hedge its holdings of fixed income securities
against a rise in market interest rates, the Fund could enter into
contracts to deliver securities at a predetermined price (i.e., "go
short") to protect itself against the possibility that the prices of its
fixed income securities may decline during the Fund's anticipated holding
period. The Fund would agree to purchase securities in the future at a
predetermined price (i.e., "go long") to hedge against a decline in
market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
The Fund would purchase put options on futures contracts to protect
portfolio securities against decreases in value resulting from an
anticipated increase in market interest rates. Generally, if the hedged
portfolio securities decrease in value during the term of an option, the
related futures contracts will also decrease in value and the option will
increase in value. In such an event, the Fund will normally close out its
option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be
large enough to offset both the premium paid by the Fund for the original
option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option. To do so, it would
simultaneously enter into a futures contract of the type underlying the
option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in
return for payment of the strike price. If the Fund neither closes out
nor exercises an option, the option will expire on the date provided in
the option contract, and the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio against
an increase in market interest rates. When the Fund writes a call option
on a futures contract, it is undertaking the obligation of assuming a
short futures position (selling a futures contract) at the fixed strike
price at any time during the life of the option if the option is
exercised. As market interest rates rise, causing the prices of futures
to go down, the Fund's obligation under a call option on a future (to
sell a futures contract) costs less to fulfill, causing the value of the
Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can offset the drop in value of the Fund's fixed income portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then offset the decrease in value of
the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized
gain or loss on those open positions, adjusted for the correlation of
volatility between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that futures
contract initial margin does not involve the borrowing of funds by the
Fund to finance the transactions. Initial margin is in the nature of a
performance bond or good faith deposit on the contract which is returned
to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will
mark-to-market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. The Fund may only sell call options either
on securities held in its portfolio or on securities which it has the
right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make 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.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Directors to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified
institutional buyers. The Rule was expected to further enhance the liquidity of
the secondary market for securities eligible for resale under Rule 144A. The
Fund believes that the Staff of the SEC has left the question of determining the
liquidity of all restricted securities eligible for resale under Rule 144A to
the Directors. The Directors consider the following criteria in determining the
liquidity of certain restricted securities:
.the frequency of trades and quotes for the security;
.the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
.dealer undertakings to make a market in the security; and
.the nature of the security and the nature of the marketplace trades.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that a defaulting seller files for bankruptcy or
becomes insolvent, disposition of securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's adviser to be
creditworthy pursuant to guidelines established by the Directors.
PORTFOLIO TURNOVER
The Fund will not attempt to set or meet a portfolio turnover rate since any
turnover would be incidental to transactions undertaken in an attempt to achieve
the Fund's investment objective. The portfolio turnover rate for the fiscal
period ending November 30, 1994 is not expected to exceed 100%.
INVESTMENT LIMITATIONS
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BUYING ON MARGIN
The Fund will not purchase any securities on margin, other than in
connection with the purchase and sale of financial futures, but may
obtain such short-term credits as are necessary for clearance of
transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the borrowing. Margin
deposits for the purchase and sale of financial futures contracts and
related options are not deemed to be a pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer other
than cash, cash items (including instruments issued by a U.S. branch of a
domestic bank or savings and loan having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment) 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 and will not acquire more than 10% of the outstanding voting
securities of any issuer.
INVESTING IN REAL ESTATE
The Fund will not buy or sell real estate, including limited partnership
interests in real estate, although it may invest in securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, except that the Fund may
purchase and sell financial futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities which the Fund may
purchase pursuant to its investment objective, policies and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable 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.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except it may invest 25% or more of the value of its
total assets in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Directors without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total assets
in securities subject to restrictions on resale under the Securities Act
of 1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Directors.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of companies, including their predecessors, that have been in
operation for less than three years. With respect to asset-backed
securities, the Fund will treat the originator of the asset pool as the
company issuing the security for purposes of determining compliance with
this limitation.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs or leases, although it may purchase the
securities of issuers which invest or sponsor such programs.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may not own securities of other investment companies excepts as
part of a merger, consolidation, reorganization, or other acquisition.
DEALING IN PUTS AND CALLS
The Fund will not purchase puts, calls, straddles, spreads, or any
combination of them, if by reason thereof the value of such securities
would exceed 5% of its total assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a violation
of such restriction.
The Fund does not expect to borrow money, pledge securities or invest in stock
of closed-end investment companies during the coming fiscal year.
FIXED INCOME SECURITIES, INC. MANAGEMENT
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OFFICERS AND DIRECTORS
Officers and Directors are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Advisers,
Federated Investors, Federated Securities Corp., Federated Administrative
Services, Inc., and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE CORPORATION DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Director Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Corporation.
John T. Conroy, Jr., Director President, Northgate Village Development Corporation and Investment
Wood/IPC Commercial Properties Corporation; Senior Vice-President, John R. Wood and
Department Associates, Inc., Realtors; General Partner or Trustee in private real
John R. Wood and estate ventures in Southwest Florida; Director, Trustee, or Managing
Associates, Inc., Realtors General Partner of the Funds; Formerly, President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Director Director and Member of the Executive Committee, Michael Baker, Inc.;
Suite 2310, Director, Trustee, or Managing General Partner of the Funds; formerly,
PNC Bank Building Vice Chairman and Director, PNC Financial Corp and Director, Ryan Homes,
Pittsburgh, PA Inc.
James E. Dowd Director Attorney-at-law; Director The Emerging Germany Fund, Inc.; Director,
571 Hayard Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Director Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher* President and Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Edward L. Flaherty, Jr.\ Director Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc. and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Director Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Trustee, Lahey Clinic Foundation, Inc.; Director, Trustee, or Managing
Boston, MA General Partner of of the Funds; formerly, President, State Street Bank
and Trust Company and State Street Boston Corporation.
Gregor F. Meyer Director Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Director Management Consultant; Trustee, Carnegie Endowment for International
1202 Cathedral of Learning Peace, RAND Corporation and U.S. Space Foundation; Chairman, National
University of Pittsburgh Advisory Council for Environmental Policy and Technology; Chairman,
Pittsburgh, PA Czecho Slovak Management Center; Director, Trustee, or Managing General
Partner of the Funds; formerly, President, University of Pittsburgh.
Marjorie P. Smuts Director Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Managment, and Federated Research; President and Director,
Pittsburgh, PA Federated Administrative Services, Inc.; President or Vice President of
the Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Director
of the Corporation.
Edward C. Gonzales Vice President Vice President, Treasurer and and Treasurer Trustee, Federated
Federated Investors Tower Investors; Vice President and Treasurer, Federated Advisers, Federated
Pittsburgh, PA Management, and Federated Research; Executive Vice President, Treasurer,
and Director, Federated Securities Corp.; Chairman, Treasurer, and
Director, Federated Administrative Services, Inc.; Trustee or Director
of some of the Funds; Vice President and Treasury of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Executive Vice President,
Secretary, and Director, Federated Administrative Services, Inc.;
Director and Executive Vice President, Federated Securities Corp.; Vice
President and Secretary of the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
*This Director is deemed to be an "interested person" of the Fund as
defined in the Investment Company Act of 1940.
\Members of the Fund's Executive Committee. The Executive Committee of the Board
of Directors handles the Directors' responsibilities between meetings of the
Directors.
THE FUNDS
"The Funds," and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series,
Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT
Series, Inc.; Federated ARMs Fund; Federated Bond Fund; Federated Exchange Fund,
Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; First
Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S.
Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility
Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income
Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty Term Trust, Inc.-1999; Liberty U.S. Government Money Market
Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran
Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; and Trust for U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Directors own less than 1% of the outstanding Shares.
DIRECTOR LIABILITY
The Corporation's Articles of Incorporation provide that the Directors will not
be liable for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue. John F. Donahue, Chairman and Trustee
of Federated Advisers, is Chairman and Trustee of Federated Investors, and
Chairman and Director of the Fund. John A. Staley, IV, President and Trustee of
Federated Advisers, is Vice President and Trustee of Federated Investors,
Executive Vice President of Federated Securities Corp., and Vice President of
the Fund. J. Christopher Donahue, Trustee of Federated Advisers, is President
and Trustee of Federated Investors, President and Director of Federated
Administrative Services, Inc. and Vice President of the Fund. John W. McGonigle,
Vice President, Secretary and Trustee of Federated Advisers, is Trustee, Vice
President, Secretary and General Counsel of Federated Investors, Executive Vice
President, Secretary and Director of Federated Administrative Services, Inc.,
Executive Vice President and Director of Federated Securities Corp., and Vice
President and Secretary of the Fund. The Adviser shall not be liable to the Fund
or any shareholder for any losses that may be sustained in the purchase,
holding, or sale of any security or for anything done or omitted by it, except
acts or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Fund.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus.
STATE EXPENSE LIMITATION
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be waived by the Adviser will be
limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
In return for providing shareholder servicing to its customers who from time to
time may be owners of record or beneficial owners a financial institution may
receive payments from the Fund at a rate not exceeding 0.25 of 1% of the average
daily net assets of the the Fund beneficially owned by the financial
institution's customers for whom it is holder of record or with whom it has a
servicing relationship.
These services may include, but not are not limited to, the provision of
personal services and maintenance of shareholder accounts.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund at approximate cost.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Directors.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
.advice as to the advisability of investing in securities;
.security analysis and reports;
.economic studies;
.industry studies;
.receipt of quotations for portfolio evaluations; and
.similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SELECT SHARES
- --------------------------------------------------------------------------------
Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value on days the New York Stock Exchange is open for
business. The procedure for purchasing Shares of the Fund is explained in the
prospectus under "Investing in the Fund."
DISTRIBUTION PLAN
The Fund has adopted a Plan under Rule 12b-1 which was promulgated by the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940. The Plan provides for payment of fees to Federated Securities Corp. to
finance any activity which is principally intended to result in the sale of the
Fund's Shares. Such activities may include the advertising and marketing of
Shares; preparing, printing, and distributing prospectuses and sales literature
to prospective shareholders or brokers; and implementing and operating the Plan.
Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers for
distribution services.
The Directors expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's securities are determined as follows:
.as provided by an independent pricing service; or
.at fair value as determined in good faith by the Directors.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices. Pricing services may consider:
.yield;
.quality;
.coupon rate;
.maturity;
.type of issue;
.trading characteristics; and
.other market data.
REDEEMING SELECT SHARES
- --------------------------------------------------------------------------------
The Fund redeems Shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
The Corporation is obligated to redeem Shares solely in cash up to $250,000 or
1% of the respective class's net asset value, whichever is less, for any one
shareholder within a 90-day period.
Any redemption beyond this amount will also be in cash unless the Directors
determine that payments should be in kind. In such a case, the Fund will pay all
or a portion of the remainder of the redemption in portfolio instruments, valued
in the same way that net asset value is determined. The portfolio instruments
will be selected in a manner that the Directors deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
.derive less than 30% of its gross income from the sale of securities held less
than three months;
.invest in securities within certain statutory limits; and
.distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional Shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held the
Fund shares.
TOTAL RETURN
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The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the offering price per share at the end of the peirod. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any additional
shares, assuming the monthly reinvestment of all dividends and distributions.
YIELD
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The yield of the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) over a thirty-day
period by the maximum offering price per share of Shares of the Fund on the last
day of the period. This value is annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. The yield of the Fund does not necessarily reflect income
actually earned by the the Fund because of certain adjustments required by the
Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders. To the extent that
financial institutions and broker/dealers charge fees in connection with
services provided in conjunction with an investment in the Fund, performance
will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
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The performance of the Fund depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates and market value of portfolio securities;
.changes in the Fund expenses; and
.various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
From time to time, the Fund may advertise its performance compared to similar
funds or portfolios using certain indices, reporting services and financial
publications. These may include the following:
.LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "short-term U.S.
government funds" category in advertising and sales literature.
.MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Investors may use such a reporting service in addition to the Fund's prospectus
to obtain a more complete view of the Fund's performance before investing. Of
course, when comparing performance of the the Fund to any index, conditions such
as composition of the index and prevailing market conditions should be
considered in assessing the significance of such comparisons. When comparing
funds using reporting services, or total return and yield, investors should take
into consideration any relevant differences in funds such as permitted portfolio
compositions and methods used to value portfolio securities and compute offering
price.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
APPENDIX
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STANDARD AND POOR'S CORPORATION CORPORATE BOND RATING
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakend capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATING
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and
'AA' categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated 'F-1+'.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payments.
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) SIGN
DESIGNATION.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
'A-1'.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; well established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment.
3092104B (12/93)
