SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Federated U.S. Government Bond Fund
(Name of Registrant as Specified In Its Charter)
Federated Investors
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4. Proposed maximum aggregate value of transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary proxy materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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iii
Federated U.S. Government Bond Fund
Proxy Statement - Please Vote!
TIME IS OF THE ESSENCE. . .VOTING ONLY TAKES A FEW MINUTES AND YOUR
PARTICIPATION IS IMPORTANT! ACT NOW TO HELP THE FUND AVOID ADDITIONAL EXPENSE.
Federated U.S. Government Bond Fund will hold a special meeting of shareholders
on November 15, 1999. It is important for you to vote on the issues described in
this Proxy Statement. We recommend that you read the Proxy Statement in its
entirety; the explanations will help you to decide on the issues.
Following is an introduction to the proposals and the process.
Why am I being asked to vote?
Mutual funds are required to obtain shareholders' votes for certain types of
changes, like those included in this Proxy Statement. You have a right to vote
on these changes.
How do I vote my shares?
You may vote in person at the meeting or complete and return the enclosed Proxy
Card. If you:
1. do not respond at all, we may contact you by telephone to request that
you cast your vote.
2. sign and return the Proxy Card without indicating a preference, your
vote will be cast "for" all the proposals.
What are the issues?
The proposals include:
o the election of Trustees;
o changes to the Fund's fundamental investment policies; and
o amendments to and restatement of the Declaration of Trust.
Why are individuals recommended for election to the Board of Trustees?
The Fund is devoted to serving the needs of its shareholders, and the Board is
responsible for managing the Fund's business affairs to meet those needs. The
Board represents the shareholders and can exercise all of the Fund's powers,
except those reserved only for shareholders.
Trustees are selected on the basis of their education and professional
experience. Candidates are chosen based on their distinct interest in, and
capacity for understanding the complexities of, the operation of a mutual fund.
These individuals bring considerable experience to the impartial oversight of a
fund's operation.
The Proxy Statement includes a brief description of each nominee's history and
current position with the Fund, if applicable.
Why are the Fund's "fundamental policies" being changed or eliminated?
Every mutual fund has certain investment policies that can be changed only with
the approval of its shareholders. These are referred to as "fundamental"
investment policies.
In some cases, these policies were adopted to reflect regulatory, business, or
industry conditions that no longer exist or no longer are necessary. In other
cases, advances in the securities markets and the economy have created different
procedures and techniques that affect the Fund's operations.
By reducing the number of "fundamental policies," the Fund may be able to
minimize the costs and delays associated with frequent shareholder meetings.
Also, the investment adviser's ability to manage the Fund's assets may be
enhanced and investment opportunities increased. The proposed amendments
will:
o reclassify as operating policies those fundamental policies that are not
required to be fundamental by the Investment Company Act of 1940, as
amended ("1940 Act");
o simplify and modernize the policies that are required to be "fundamental"
by the 1940 Act; and
o eliminate fundamental policies that are no longer required by the
securities laws of individual states.
Federated Investment Management Company, the Fund's adviser, is a conservative
money manager. Its highly trained professionals are dedicated to making
investment decisions in the best interest of the Fund and its shareholders. The
Board believes that the proposed changes will be applied responsibly by the
adviser.
Why are some "fundamental policies" being reclassified as "operating policies"?
As noted above, some "fundamental policies" have been redefined as "operating
policies." Operating policies do not require shareholder approval to be changed.
This gives the Fund's Board additional flexibility to determine whether to
participate in new investment opportunities and to meet industry changes
promptly.
Why are the Trustees recommending amendments to the Declaration of Trust?
The Declaration of Trust organizing the Fund was prepared many years ago. Since
then, developments in the investment company industry and changes in the law
resulted in many improvements. The Board is recommending changes to the
Declaration that permit the Fund to benefit from these developments.
Who do I call if I have questions about the Proxy Statement? Call your
Investment Professional or a Federated Client Service Representative.
Federated's toll-free number is 1-800-341-7400.
SPECIAL NOTE:
For convenience and ease of voting, multiple issues have been combined in some
proposals on the Proxy Card. You have four options:
1. to approve all place an "X" in the "for" box
2. to disapprove all place an "X" in the "against" box
3. to withhold your vote place an "X" in the "abstain" box
4. to disapprove any issue(s) place an "X" in the box on the left and using the line below,
write the number(s) of the issue(s) you are voting against.
You will find the list of proposals (and identifying numbers) on the page titled
"Notice of Special Meeting of Shareholders" at the front of your Proxy
Statement.
IF YOU CHECK MORE THAN ONE BOX FOR EACH PROPOSAL, YOU INVALIDATE YOUR VOTE FOR
THAT PROPOSAL.
After careful consideration, the Board of Trustees has
unanimously approved these proposals. The Board recommends
that you read the enclosed materials
carefully and vote for all proposals.
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DEFINITIVE
FEDERATED U.S. GOVERNMENT BOND FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 15, 1999
A special meeting of the shareholders of Federated U.S.
Government Bond Fund (the "Trust") will be held at 5800 Corporate Drive,
Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (Eastern Time), on November
15, 1999, to consider proposals:
(1) To elect seven Trustees.
(2) To make changes to the Trust's fundamental investment
policies:
(a) To amend the Trust's fundamental investment policy
regarding diversification;
(b) To amend the Trust's fundamental investment
policy regarding borrowing money and issuing
senior securities;
(c) To amend the Trust's fundamental investment
policy regarding investments in real estate;
(d) To amend the Trust's fundamental investment
policies regarding investments in commodities;
(e) To amend the Trust's fundamental investment
policy regarding underwriting securities;
(f) To amend the Trust's fundamental investment
policies regarding lending by the Trust;
(g) To amend the Trust's fundamental investment
policy regarding concentration of the Trust's
investments in the securities of companies in
the same industry;
(h) To amend, and to make non-fundamental, the
Trust's fundamental investment policy regarding
buying securities on margin;
(i) To amend, and to make non-fundamental, the
Trust's fundamental investment policy regarding
pledging assets;
(j) To amend, and to make non-fundamental, the
Trust's fundamental investment policies
regarding investing in restricted securities and
investing in illiquid securities;
(k) To amend, and to make non-fundamental, the
Trust's fundamental investment policy regarding
temporary investments;
(l) To make non-fundamental the Trust's fundamental
investment policies regarding purchasing put
options;
(m) To make non-fundamental the Trust's fundamental
investment policies regarding selling call
options;
(n) To make non-fundamental the Trust's fundamental
investment policy regarding investing in
when-issued and delayed delivery transactions;
and
(o) To make non-fundamental the Trust's fundamental
investment policy regarding entering into
reverse repurchase agreements.
(3) To eliminate certain of the Trust's fundamental
investment policies:
(a) To remove the Trust's fundamental investment policy on
selling securities short;
(b) To remove the Trust's fundamental investment
policy on investing in oil, gas and minerals;
(c) To remove the Trust's fundamental investment
policy on investing in securities of new
issuers;
(d) To remove the Trust's fundamental investment
policy on investing in issuers whose securities
are owned by officers and Trustees;
(e) To remove the Trust's fundamental investment
policy on investing for the purpose of
exercising control;
(f) To remove the Trust's fundamental investment
policy regarding short-term trading; and
(g) To remove the Trust's fundamental investment
policies confining investments to instruments
that are permitted investments for federally
chartered savings and loan institutions.
(4) To approve amendments to, and a restatement of, the
Trust's Declaration of Trust:
(a) To require the approval of a majority of the
outstanding voting securities of the Trust in
the event of the sale and conveyance of the
assets of the Trust to another trust or
corporation; and
(b) To permit the Board of Trustees to liquidate
assets of the Trust, or of its series or
classes, and distribute the proceeds of such
assets to the holders of such shares
representing such interests, without seeking
shareholder.
To transact such other business as may properly come
before the meeting or any adjournment thereof.
The Board of Trustees has fixed September 16, 1999 as the record date for
determination of shareholders entitled to vote at the meeting.
By Order of the Board of Trustees,
John W. McGonigle
Secretary
October 12, 1999
YOU CAN HELP THE TRUST AVOID THE NECESSITY AND EXPENSE OF SENDING FOLLOW-UP
LETTERS TO ENSURE A QUORUM BY PROMPTLY SIGNING AND RETURNING THE ENCLOSED PROXY.
IF YOU ARE UNABLE TO ATTEND THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN THE
ENCLOSED PROXY SO THAT THE NECESSARY QUORUM MAY BE REPRESENTED AT THE SPECIAL
MEETING. THE ENCLOSED ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES.
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TABLE OF CONTENTS
About the Proxy Solicitation and the Meeting................................5
Election of Seven Trustees..................................................5
About the Election of Trustees..............................................6
Trustees Standing for Election..............................................7
Nominees Not Presently Serving as Trustees..................................7
Approval of Changes to the Trust's Fundamental Investment
Policies...............................................................8
Approval of the Elimination of Certain Fundamental Investment
Policies of the Trust.................................................19
Approval of Amendments to and a Restatement of the Trust's
Declaration of Trust..................................................22
Information About the Trust................................................24
Proxies, Quorum and Voting at the Meeting..................................24
Share Ownership of the Trustees............................................25
Trustee Compensation.......................................................25
Officers and Incumbent Trustees of the Trust...............................26
Other Matters and Discretion of Attorneys Named in the Proxy...............30
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DEFINITIVE
PROXY STATEMENT
FEDERATED U.S. GOVERNMENT BOND FUND
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
About the Proxy Solicitation and the Meeting
The enclosed proxy is solicited on behalf of the Board of Trustees
of the Trust (the "Board" or "Trustees"). The proxies will be voted at the
special meeting of shareholders of the Trust to be held on November 15, 1999, at
5800 Corporate Drive, Pittsburgh, Pennsylvania 15237-7000, at 2:00 p.m. (such
special meeting and any adjournment or postponement thereof are referred to as
the "Meeting").
The cost of the solicitation, including the printing and mailing of
proxy materials, will be borne by the Trust. In addition to solicitations
through the mails, proxies may be solicited by officers, employees, and agents
of the Trust or, if necessary, a communications firm retained for this purpose.
Such solicitations may be by telephone, telegraph, through the Internet or
otherwise. Any telephonic solicitations will follow procedures designed to
ensure accuracy and prevent fraud, including requiring identifying shareholder
information, recording the shareholder's instructions, and confirming to the
shareholder after the fact. Shareholders who communicate proxies by telephone or
by other electronic means have the same power and authority to issue, revoke, or
otherwise change their voting instruction as shareholders submitting proxies in
written form. The Trust may reimburse custodians, nominees, and fiduciaries for
the reasonable costs incurred by them in connection with forwarding solicitation
materials to the beneficial owners of shares held of record by such persons.
The Board has reviewed both the proposed changes recommended in the
investment policies of the Trust and the proposed amendments to the Declaration
of Trust, and approved them, subject to shareholder approval. The purposes of
the Meeting are set forth in the accompanying Notice. The Trustees know of no
business other than that mentioned in the Notice that will be presented for
consideration at the Meeting. Should other business properly be brought before
the Meeting, proxies will be voted in accordance with the best judgment of the
persons named as proxies. This Proxy Statement and the enclosed proxy card are
expected to be mailed on or about October 12, 1999, to shareholders of record at
the close of business on September 16, 1999 (the "Record Date"). On the Record
Date, the Trust had 12,246,069.73 outstanding shares of beneficial interest.
The Trust's annual report, which includes audited financial statements
for the fiscal year ended August 31, 1999, was previously mailed to
shareholders. The Trust will promptly provide, without charge and upon request,
to each person to whom this Proxy Statement is delivered, a copy of the Trust's
annual report. Requests for an annual report may be made in writing to the
Trust's principal executive offices or by calling the Trust. The Trust's
principal executive offices are located at Federated Investors Funds, 5800
Corporate Drive, Pittsburgh, Pennsylvania 15237-7000. The Trust's toll-free
telephone number is 1-800-341-7400.
PROPOSAL #1: ELECTION OF SEVEN TRUSTEES
The persons named as proxies intend to vote in favor of the election of
Thomas G. Bigley, Nicholas P. Constantakis, John F. Cunningham, J. Christopher
Donahue, Charles F. Mansfield, Jr., John E. Murray, Jr. and John S. Walsh
(collectively, the "Nominees") as Trustees of the Trust. Messrs. Bigley,
Mansfield, Murray and Walsh are presently serving as Trustees. If elected by
shareholders, Messrs. Constantakis, Cunningham and Donahue are expected to
assume their responsibilities as Trustees effective January 1, 2000. Please see
"About the Election of Trustees" below for current information about the
Nominees, and "Officers and Incumbent Trustees of the Trust" in this Proxy
Statement for current information about the incumbent Trustees who have
previously been elected by shareholders.
Messrs. Bigley and Murray were appointed Trustees on November 15, 1994
and February 14, 1995, respectively, to fill vacancies created by the decision
to expand the size of the Board. Messrs. Mansfield and Walsh were appointed
Trustees on January 1, 1999, also to fill vacancies resulting from the decision
to expand the size of the Board. Each of Messrs. Constantakis, Cunningham and
Donahue are being proposed for election as a Trustee as a result of a decision
to expand the size of the Board.
All Nominees have consented to serve if elected. If elected, the
Trustees will hold office without limit in time until death, resignation,
retirement, or removal or until the next meeting of shareholders to elect
Trustees and the election and qualification of their successors. Election of a
Trustee is by a plurality vote, which means that the seven individuals receiving
the greatest number of votes at the Meeting will be deemed to be elected.
If any Nominee for election as a Trustee named above shall by reason of
death or for any other reason become unavailable as a candidate at the Meeting,
votes pursuant to the enclosed proxy will be cast for a substitute candidate by
the proxies named on the proxy card, or their substitutes, present and acting at
the Meeting. Any such substitute candidate for election as a Trustee who is an
"interested person" (as defined in the Investment Company Act of 1940, as
amended (the "1940 Act")) of the Trust shall be nominated by the Executive
Committee. The selection of any substitute candidate for election as a Trustee
who is not an "interested person" shall be made by a majority of the Trustees
who are not "interested persons" of the Trust. The Board has no reason to
believe that any Nominee will become unavailable for election as a Trustee.
THE BOARD OF TRUSTEES RECOMMENDS THAT
SHAREHOLDERS VOTE TO ELECT AS TRUSTEES THE NOMINEES FOR
ELECTION TO THE BOARD OF TRUSTEES OF THE TRUST
About the Election of Trustees
The Declaration of Trust provides that Trustees will continue in office
until their respective successors are elected, and therefore, when elected,
Trustees will hold office during the lifetime of the Trust, except that: (a) any
Trustee may resign; (b) any Trustee may be removed by written instrument signed
by at least two-thirds of the number of Trustees prior to such removal; (c) any
Trustee who requests to be retired or who has become mentally or physically
incapacitated may be retired by written instrument signed by a majority of the
other Trustees; and (d) a Trustee may be removed at any special meeting of the
shareholders by a vote of two-thirds of the outstanding shares of the Trust. In
case a vacancy shall exist for any reason, the remaining Trustees will fill such
vacancy by appointment of another Trustee. The Trustees will not fill any
vacancy by appointment if, immediately after filling such vacancy, less than
two-thirds of the Trustees then holding office would have been elected by the
shareholders. If, at any time, less than a majority of the Trustees holding
office have been elected by the shareholders, the Trustees then in office will
call a shareholders' meeting for the purpose of electing Trustees to fill
vacancies. Otherwise, there will normally be no meeting of shareholders called
for the purpose of electing Trustees.
Set forth below is a listing of: (i) the Trustees standing for
election, and (ii) the Nominees standing for election who are not presently
serving as Trustees, along with their addresses, birthdates, present positions
with the Trust, if applicable, and principal occupations during the past five
years:
Trustees Standing for Election
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director or Trustee of the Federated Fund Complex; Director, Member of
Executive Committee, Children's Hospital of Pittsburgh; Director, Robroy
Industries, Inc. (coated steel conduits/computer storage equipment); formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc. (physician
practice management); Director, Member of Executive Committee, University of
Pittsburgh.
Charles F. Mansfield, Jr.
80 South Road
Westhampton Beach, NY
Birthdate: April 10, 1945
Trustee
Director or Trustee of some of the Funds in the Federated Fund Complex;
Management Consultant. Previous Positions: Chief Executive Officer, PBTC
International Bank; Partner, Arthur Young & Company (now Ernst & Young LLP);
Chief Financial Officer of Retail Banking Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank; Vice President, Citibank; Asistant
Professor of Banking and Finance, Frank G. Zarb School of Business, Hofstra
University.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Federated Fund Complex; President, Law Professor,
Duquesne University; Consulting Partner, Mollica & Murray; Director, Michael
Baker Corp. (engineering, construction, operations and technical services);
formerly, Dean and Professor of Law, University of Pittsburgh School of Law;
Dean and Professor of Law, Villanova University School of Law.
John S. Walsh
2007 Sherwood Drive
Valparaiso, IN
Birthdate: November 28, 1957
Trustee
Director or Trustee of some of the Funds in the Federated Fund Complex;
President and Director, Heat Wagon, Inc. (manufacturer of construction temporary
heaters); President and Director, Manufacturers Products, Inc. (distributor of
portable construction heaters); President, Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh & Kelly, Inc. (heavy highway
contractor); Vice President, Walsh & Kelly, Inc.
Nominees Not Presently Serving as Trustees
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Director or Trustee of the Federated Fund Complex; formerly, Partner, Andersen
Worldwide SC.
John F. Cunningham
353 El Brillo Way
Palm Beach, FL
Birthdate: March 5, 1943
Director or Trustee of some of the Funds in the Federated Fund Complex;
Chairman, President and Chief Executive Officer, Cunningham & Co., Inc.
(strategic business consulting); Trustee Associate, Boston College; Director,
Iperia Corp. (communications/software); formerly, Director, Redgate
Communications and EMC Corporation (computer storage systems). Previous
Positions: Chairman of the Board and Chief Executive Officer, Computer Consoles,
Inc.; President and Chief Operating Officer, Wang Laboratories; Director, First
National Bank of Boston; Director, Apollo Computer, Inc.
J. Christopher Donahue
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Federated Fund Complex; Director
or Trustee of some of the Funds in the Federated Fund Complex; President, Chief
Executive Officer and Director, Federated Investors, Inc.; President and
Trustee, Federated Investment Management Company and Federated Investment
Counseling; President and Director, Federated Global Investment Management
Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company; Director, Federated Services Company. Mr. Donahue is the son
of John F. Donahue, Chairman and Trustee of the Trust.
APPROVAL OF CHANGES TO THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
Introduction to Proposals #2(a) to #2(o) and #3(a) to #3(g).
The 1940 Act (which was adopted to protect mutual fund shareholders)
requires investment companies such as the Trust to adopt certain specific
investment policies or restrictions that can be changed only by shareholder
vote. An investment company may also elect to designate other policies or
restrictions that may be changed only by shareholder vote. Both types of
policies and restrictions are often referred to as "fundamental policies." These
policies and restrictions limit the investment activities of the Trust's
investment adviser.
After the Trust was formed in 1985, legal and regulatory requirements
applicable to mutual funds changed. For example, certain restrictions imposed by
state laws and regulations were preempted by the National Securities Markets
Improvement Act of 1996 ("NSMIA") and no longer apply. As a result, the Trust is
subject to fundamental policies that are no longer required to be fundamental,
and to other policies that are no longer required at all. Accordingly, the
Trustees have authorized the submission to the Trust's shareholders for their
approval, and recommend that shareholders approve, the amendment,
reclassification and/or elimination of certain of the Trust's fundamental
policies.
The proposed amendments would:
(i) simplify, modernize and standardize the fundamental policies that
are required to be stated under the 1940 Act;
(ii) reclassify as operating policies those fundamental policies
that are not required to be fundamental under the 1940 Act;
and
(iii) eliminate those fundamental policies that are no longer
required by the securities laws of the various states.
By reducing the number of policies that can be changed only by
shareholder vote, the Trustees believe that the Trust would be able to minimize
the costs and delays associated with holding future shareholder meetings to
revise fundamental policies that become outdated or inappropriate. The Trustees
also believe that the investment adviser's ability to manage the Trust's assets
in a changing investment environment will be enhanced and that investment
management opportunities will be increased by these changes. The chart that
follows briefly describes the differences between fundamental policies and
non-fundamental policies.
Fundamental Policies Non-Fundamental Policies
-------------------------------------- ---------------------------------------
Who must approve changes in the Board of Trustees and shareholders Board of Trustees
policies?
How quickly can a change in the Fairly slowly, since a vote of Fairly quickly, because the change
policies be made? shareholders is required can be accomplished by action of the
Board of Trustees
What is the relative cost to Costly to change because a Less costly to change because a
change a policy? shareholder vote requires holding a change can be accomplished by action
meeting of shareholders of the Board of Trustees
The recommended changes are specified below. Each Proposal will be
voted on separately by shareholders, and the approval of each Proposal by the
Trust will require the approval of a majority of the outstanding voting shares
of the Trust as defined in the 1940 Act. (See "Proxies, Quorum and Voting at the
Meeting" below.)
Description of Proposed Changes
The proposed standardized fundamental investment policies cover those
areas for which the 1940 Act requires the Trust to have a fundamental
restriction. They satisfy current regulatory requirements and are written to
provide flexibility to respond to future legal, regulatory, market or technical
changes. The proposed standardized changes will not affect the Trust's
investment objective. Although the proposed changes in fundamental policies will
allow the Trust greater flexibility to respond to future investment
opportunities, the Board of Trustees of the Trust does not anticipate that the
changes, individually or in the aggregate, will result at this time in a
material change in the level of investment risk associated with investment in
the Trust. Nor does the Board of Trustees anticipate that the proposed changes
in fundamental investment policies will, individually or in the aggregate,
change materially the manner in which the Trust is managed.
The following is the text and a summary description of the proposed
changes to the Trust's fundamental policies and restrictions. Any
non-fundamental policy may be modified or eliminated by the Trustees at any
future date without any further approval of shareholders. Shareholders should
note that certain of the fundamental policies that are treated separately below
currently are combined within a single existing fundamental policy.
Presently, if the Trust adheres to a fundamental or non-fundamental
percentage restriction at the time of an investment or transaction, a later
increase or decrease in the percentage resulting from a change in the value of
the Trust's portfolio securities or the amount of its total assets does not
create a violation of the policy. This policy will continue to apply for any of
the proposed changes that are approved.
PROPOSAL #2: APPROVAL OF CHANGES TO THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES
PROPOSAL #2(a): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING DIVERSIFICATION
Under the 1940 Act, the Trust's policy relating to the diversification
of its investments must be fundamental. The 1940 Act prohibits a "diversified"
mutual fund from purchasing securities of any one issuer if, at the time of
purchase, more than 5% of the fund's total assets would be invested in
securities of that issuer or the fund would own or hold more than 10% of the
outstanding voting securities of that issuer, except that up to 25% of the
fund's total assets may be invested without regard to this limitation. The 5%
limitation does not apply to securities issued by or guaranteed by the U.S.
government, its agencies or instrumentalities or to securities issued by other
open-end investment companies.
The Trust's present policy regarding diversification states:
"The Trust will not invest more than 5% of the value of its total
assets in any one issuer (except cash and cash items, repurchase
agreements, and U.S. government obligations). The Trust may invest up
to 15% of its total assets in the certificates of deposit of one bank.
The Trust considers the type of bank obligations it purchases as cash
items."
In order to afford the Trust's investment adviser maximum flexibility
in managing the Trust's assets, the Trustees propose to amend the Trust's
diversification policy to be consistent with the definition of a diversified
investment company under the 1940 Act. The amended policy complies with the U.S.
Securities and Exchange Commission's (the "SEC" or "Commission") general
definition of diversification. The new policy would specifically add securities
of other investment companies to the list of issuers that are excluded from the
5% limitation to the investment policy for the Trust.
Upon approval of the Trust's shareholders, the fundamental investment
policy governing diversification for the Trust will be amended as follows:
"With respect to securities comprising 75% of the value of its total
assets, the Trust will not purchase securities of any one issuer (other
than cash; cash items; securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such U.S. government
securities; and securities of other investment companies) if, as a
result, more than 5% of the value of its total assets would be invested
in securities of that issuer, or the Trust would own more than 10% of
the outstanding voting securities of that issuer."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(b): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING BORROWING MONEY AND ISSUING SENIOR SECURITIES
The 1940 Act requires the Trust to have a fundamental investment policy
defining its ability to borrow money or issue senior securities. In general,
limitations on borrowing are designed to protect shareholders and their
investments by restricting a fund's ability to subject its assets to any claims
of creditors or senior security holders who would be entitled to dividends or
rights on liquidation of the fund prior to the rights of shareholders.
Shareholders of the Trust are being asked to approve a new standardized
fundamental policy for borrowing and the issuance of senior securities designed
to reflect all current regulatory requirements. The Trust's current policy
states:
"The Trust will not issue senior securities except that the Trust may
borrow money and engage in reverse repurchase agreements in amounts up
to one-third of the value of its net assets, including the amounts
borrowed. The Trust 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 Trust to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. The Trust will not purchase any
securities while any such borrowings are outstanding. During the period
any reverse repurchase agreements are outstanding, but only to the
extent necessary to assure completion of the reverse repurchase
agreements, the Trust will restrict the purchase of portfolio
instruments to money market instruments maturing on or before the
expiration date of the reverse repurchase agreements."
Senior Securities-Generally. A "senior security" is an obligation of an
investment company with respect to its earnings or assets that takes precedence
over the claims of the fund's shareholders with respect to the same earnings or
assets. The 1940 Act generally prohibits a fund from issuing senior securities,
in order to limit the use of leverage. In general, an investment company uses
leverage when it borrows money to enter into securities transactions, or
acquires an asset without being required to make payment until a later time.
The Commission's staff interpretations allow a fund to engage in a
number of types of transactions which might otherwise be considered to create
"senior securities" or "leverage," so long as the fund meets certain collateral
requirements designed to protect shareholders. For example, some transactions
that may create senior security concerns include short sales, certain options
and futures transactions, reverse repurchase agreements and securities
transactions that obligate the fund to pay money at a future date (such as
when-issued, forward commitment or delayed delivery transactions). When engaging
in such transactions, the fund must set aside money or securities to meet the
SEC staff's collateralization requirements. This procedure effectively
eliminates the fund's ability to engage in leverage for these types of
transactions.
Borrowing-Generally. Under the 1940 Act, an investment company is permitted to
borrow up to 5% of its total assets for temporary purposes. A fund may borrow
only from banks. If borrowings exceed 5%, the fund must have assets totaling at
least 300% of the borrowing when the amount of the borrowing is added to the
fund's other assets. The effect of this provision is to allow the fund to borrow
from banks in amounts up to one-third (33 1/3%) of its total assets (including
the amount borrowed). Investment companies typically borrow money to meet
redemptions in order to avoid a forced, unplanned sale of portfolio securities.
This technique allows the fund greater flexibility to buy and sell portfolio
securities for investment or tax considerations, rather than for cash flow
considerations. The costs of borrowing, however, can also reduce the fund's
total return.
The borrowing provisions of the Trust permit borrowing only as a
temporary measure for extraordinary purposes. They also limit the Trust's
ability to purchase securities when any borrowing is outstanding and restrict
the types of securities that may be purchased while reverse repurchase
agreements are outstanding. The proposed investment policy would provide greater
flexibility to the Trust, and would permit the Trust to borrow money, directly
or indirectly (such as through reverse repurchase agreements), and issue senior
securities within the limits established under the 1940 Act or under any rule or
regulation of the Commission, or any SEC staff interpretation thereof. If the
new policy is approved by shareholders, the Trust does not presently anticipate
changing its current practices relating to borrowing money and issuing senior
securities. As a matter of operating policy, the Trust does not intend to engage
in leveraging.
Upon shareholder approval, the fundamental investment policy governing
borrowing money and issuing senior securities by the Trust will state:
"The Trust may borrow money, directly or indirectly, and issue senior
securities to the maximum extent permitted under the 1940 Act."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(c): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY
REGARDING INVESTMENTS IN REAL ESTATE
Under the 1940 Act, the Trust's policy concerning investments in real
estate must be fundamental. The Trust currently has a fundamental investment
policy prohibiting the purchase or sale of real estate. The current policy,
however, allows the Trust to invest in securities that are secured by real
estate, and states:
"The Trust will not buy or sell real estate, although it may invest in
the securities of companies whose business involves the purchase or
sale of real estate or in securities which are secured by real estate
or interests in real estate."
The proposed fundamental investment policy will not permit the Trust to
purchase real estate directly, but will permit the purchase of securities whose
payments of interest or principal are secured by mortgages or other rights to
real estate in the event of default. The investment policy will also enable the
Trust to invest in companies within the real estate industry, provided such
investments are consistent with the Trust's investment objective and policies.
If the new policy is approved by shareholders, the Trust does not presently
anticipate changing its current practices relating to investing in real estate.
Upon shareholder approval, the fundamental investment policy governing
investments in real estate by the Trust will state:
"The Trust may not purchase or sell real estate, provided that this
restriction does not prevent the Trust from investing in issuers which
invest, deal, or otherwise engage in transactions in real estate or
interests therein, or investing in securities that are secured by real
estate or interests therein. The Trust may exercise its rights under
agreements relating to such securities, including the right to enforce
security interests and to hold real estate acquired by reason of such
enforcement until that real estate can be liquidated in an orderly
manner."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(d): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES
REGARDING INVESTMENTS IN COMMODITIES
Under the 1940 Act, the Trust's policy concerning investments in
commodities must be fundamental. The Trust is currently subject to a fundamental
restriction prohibiting the purchase or sale of commodities that provides:
"The Trust will not purchase or sell commodities. However the Trust may
purchase put options on portfolio securities and on financial futures
contracts. In addition, the Trust reserves the right to hedge the
portfolio by entering into financial futures contracts and to sell
calls on financial futures contracts. The Trust will notify
shareholders before such a change in its operating policies is
implemented."
In addition, the Trust is subject to a related fundamental investment policy
regarding investing in futures contracts and financial futures contracts that
states:
"For the immediate future, the Trust will enter into futures contracts
directly only when it desires to exercise a financial futures put
option in its portfolio rather than either closing out the option or
allowing it to expire. The Trust reserves the right to attempt, in the
future, to hedge the portfolio by entering into financial futures
contracts and to write calls on financial futures contracts. The Trust
will notify shareholders before it begins engaging in these
transactions."
Historically, the most common types of commodities have been physical
commodities such as wheat, cotton, rice and corn. However, under federal law,
futures contracts are considered to be commodities and, therefore, financial
futures contracts, such as futures contracts related to currencies, stock
indices or interest rates are considered to be commodities. Financial futures
contracts enable an investment company to buy (or sell) the right to receive the
cash difference between the contract price for an underlying asset or index and
the future market price, if the market price is higher. If the future price is
lower, the investment company is obligated to pay (or, if the investment company
sold the contract, the investment company receives) the amount of the decrease.
Investment companies often desire to invest in financial futures contracts and
options related to such contracts for hedging or other investment reasons.
Notably, while an investment company is required under the 1940 Act, to have a
fundamental investment policy regarding its investments in commodities, it is
not required to have a fundamental investment policy relating to investing in
futures and options.
The proposed policy would provide appropriate flexibility for the
Trust to invest in financial futures contracts and related options. By voting to
approve the revised commodities policy, shareholders would also be voting to
approve the elimination of the current policies relating to futures contracts
and financial futures contracts. As proposed, the policy is broad enough to
permit investment in financial futures instruments for either investment or
hedging purposes, similar to the Trust's current policies. Using financial
futures instruments can involve substantial risks, and would be utilized only if
the Trust's investment adviser determined that such investments are advisable
and such practices were disclosed in the Trust's prospectus or statement of
additional information. Gains or losses on investments in financial futures
instruments depend on the direction of securities prices, interest rates and
other economic factors, and losses from engaging in these types of transactions
are potentially unlimited. At the present time, the Trust does not intend to
engage in these activities beyond what is disclosed in the Trust's current
prospectus. As a matter of non-fundamental operating policy, for purposes of the
proposed policy, investments in transactions involving futures contracts and
options, forward currency contracts, swap transactions and other financial
contracts that settle by payment of cash are not deemed to be investments in
commodities.
Upon shareholder approval, the fundamental investment policy governing
investments in commodities for the Trust will state:
"The Trust may not purchase or sell physical commodities, provided that
the Trust may purchase securities of companies that deal in
commodities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(e): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING UNDERWRITING SECURITIES
Under the 1940 Act, the Trust's policy relating to underwriting is
required to be fundamental. The Trust currently is subject to a fundamental
investment policy prohibiting it from acting as an underwriter of the securities
of other issuers. It states that:
"The Trust will not underwrite any issue of securities, except as it
may be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its
investment objective, policies, and limitations."
A person or company generally is considered an underwriter under the
federal securities laws if it participates in the public distribution of
securities of other issuers, usually by purchasing the securities from the
issuer and re-selling the securities to the public. From time to time, a mutual
fund may purchase a security for investment purposes which it later sells or
redistributes to institutional investors or others under circumstances where the
fund could possibly be considered to be an underwriter under the technical
definition of underwriter contained in the securities laws.
Upon shareholder approval, the fundamental investment policy concerning
underwriting for the Trust will state:
"The Trust may not underwrite the securities of other issuers, except
that the Trust may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances
where it may be considered to be an underwriter under the Securities
Act of 1933."
This does not constitute a substantive change in the Trust's policy.
Rather, it reflects a restatement to standardized language now to be used by the
Federated Funds, and is submitted to shareholders to comply with the 1940 Act's
requirements.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(f): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES
REGARDING LENDING BY THE TRUST
Under the 1940 Act, the Trust's policies concerning lending must be
fundamental. The Trust currently is subject to fundamental investment
restrictions limiting its ability to make loans which state:
"The Trust will not lend any of its assets except portfolio securities
in accordance with that section of the Prospectus entitled `Lending of
Portfolio Securities.' The Trust may lend portfolio securities but the
collateral received must be valued daily and, should the market value
of the loaned securities increase, the borrower must furnish additional
collateral to the Trust. During the time portfolio securities are on
loan, the borrower pays the Trust any dividends or interest paid on
such securities. Loans are subject to termination at the option of the
Trust or the borrower. The Trust does not have the right to vote
securities on loan, but would terminate the loan and regain the right
to vote if that were considered important with regard to the
investment."
The Trust's current fundamental policies permit the Trust to lend its
portfolio securities to broker-dealers, banks or other institutional investors.
Securities lending is a practice that has become common in the mutual fund
industry and involves the temporary loan of portfolio securities to parties who
use the securities for the settlement of securities transactions. The collateral
delivered to the Trust in connection with such a transaction is then invested to
provide the Trust with additional income it might not otherwise have.
Securities lending involves certain risks if the borrower fails to
return the securities. However, management believes that with appropriate
controls, such as 100% or greater collateralization of the loan and regular
monitoring of the creditworthiness of the counterparty, the ability to engage in
securities lending does not materially increase the risks to which the Trust
currently is subject. In addition, securities on loan cannot generally be sold
until the term of the loan is over. The proposed policy also authorizes the
Trust to invest in certain debt securities or repurchase agreements, which could
technically be characterized as the making of loans, whereas the Trust's current
fundamental policy does not specifically identify these investment techniques.
Upon approval of the Trust's shareholders, the fundamental investment
policy governing lending assets for the Trust will state:
"The Trust may not make loans, provided that this restriction does not
prevent the Trust from purchasing debt obligations, entering into
repurchase agreements, lending its assets to broker/dealers or
institutional investors and investing in loans, including assignments
and participation interests."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(g): TO AMEND THE TRUST'S FUNDAMENTAL INVESTMENT POLICY REGARDING
CONCENTRATION OF THE TRUST'S INVESTMENTS IN THE SECURITIES OF COMPANIES IN THE
SAME INDUSTRY
Under the 1940 Act, the Trust's policy relating to the concentration of
its investments in securities of companies in a single industry must be
fundamental. The SEC staff considers a mutual fund to "concentrate" its
investments if 25% or more of its total assets are invested in a particular
industry (not counting U.S. government securities, bank instruments issued by
domestic banks and municipal securities).
The Trust currently has a fundamental investment policy prohibiting it
from concentrating its investments in a single industry:
"The Trust will not invest 25% or more of the value of its total
assets in any one industry. However, investing in U.S. government
obligations shall not be considered investments in any one industry."
Upon the approval by the Trust's shareholders, the fundamental
investment policy governing concentration for the Trust will provide:
"The Trust will not make investments that will result in the
concentration of its investments in the securities of issuers primarily
engaged in the same industry. Government securities, municipal
securities and bank instruments will not be deemed to constitute an
industry. To conform to the current view of the SEC that only domestic
bank instruments may be excluded from industry concentration
limitations, as a matter of non-fundamental policy, the Trust will not
exclude foreign bank instruments from industry concentration limits as
long as the policy of the SEC remains in effect. In addition,
investments in bank instruments, and investments in certain industrial
development bonds funded by activities in a single industry, will be
deemed to constitute investment in an industry, except when held for
temporary defensive purposes. The investment of more than 25% of the
value of the Trust's total assets in any one industry will constitute
`concentration.'"
The Trust's Board has also approved a related non-fundamental policy
for the Trust, which will be adopted if the new fundamental policy is approved
by shareholders. This policy provides that in applying the concentration
restriction: (1) utility companies will be divided according to their services,
for example, gas, gas transmission, electric and telephone will each be
considered a separate industry; (2) financial service companies will be
classified according to the end users of their services, for example, automobile
finance, bank finance and diversified finance will each be considered a separate
industry; and (3) asset-backed securities will be classified according to the
underlying assets securing such securities.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(h): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S
FUNDAMENTAL INVESTMENT POLICY REGARDING BUYING SECURITIES ON MARGIN
The Trust is not required to have a fundamental restriction on margin
transactions. Accordingly, it is proposed that the Trust's existing fundamental
policy be replaced with a non-fundamental restriction. The Trust's current
policy provides:
"The Trust will not purchase any securities on margin but may obtain such
short-term credits as are necessary for the clearance of transactions."
The proposed non-fundamental policy will include language that
allows the Trust to make margin deposits when it engages in financial future
transactions and other similar transactions. The Trust does not contemplate that
the revisions to this policy will result in a material change from the Trust's
current practices in engaging in these types of transactions. Upon the approval
of the elimination of the existing fundamental policy on engaging in margin
transactions, the Trust would become subject to the following non-fundamental
policy:
"The Trust will not purchase securities on margin, provided that the
Trust may obtain short-term credits necessary for the clearance of
purchases and sales of securities, and further provided that the Trust
may make margin deposits in connection with its use of financial
options and futures, forward and spot currency contracts, swap
transactions and other financial contracts or derivative instruments."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(i): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING PLEDGING ASSETS
The Trust is not required to have a fundamental investment restriction
with respect to the pledging of assets. To maximize the Trust's flexibility in
this area, the Board of the Trust believes that the Trust's policy on pledging
assets should be made non-fundamental. The non-fundamental policy would be
similar to the fundamental policy proposed to be eliminated which states:
"The Trust 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 borrowing."
The Trust's investment adviser does not expect this change to have a
material impact on the Trust's operations. Establishing the policy as
non-fundamental would enable the Board to change this policy in the future
without shareholder approval. Upon the approval of the elimination of the
existing fundamental policy on pledging assets, the Trust would become subject
to the following non-fundamental policy:
"The Trust will not mortgage, pledge, or hypothecate any of its assets,
provided that this shall not apply to the transfer of securities in
connection with any permissible borrowing or to collateral arrangements
in connection with permissible activities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(j): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S FUNDAMENTAL
INVESTMENT POLICIES REGARDING INVESTING IN RESTRICTED SECURITIES AND
INVESTING IN ILLIQUID SECURITIES
The Trust is currently subject to fundamental investment policies
regarding its ability to invest in restricted securities and to invest in
illiquid securities. The Trust's management has proposed that these policies be
amended and made non-fundamental. The Trust's policy relating to restricted
securities states:
"The Trust will not invest more than 10% of its total assets in
securities subject to restrictions on resale under the Federal
Securities laws (except for commercial paper issued under Section 4(2)
of the Securities Act of 1933)."
This policy was adopted by the Trust because historically restricted securities
were viewed as illiquid since they could not be sold within seven days.
Investment companies issuing redeemable securities are required to meet a
shareholder's redemption request at the current net asset value within seven
days of receiving the request for redemption. In order to do this, some portion
of the securities in the Trust's portfolio must be "liquid" so that the
securities can be sold in sufficient time to obtain the necessary cash to meet
redemption requests. It is important to note that many restricted securities
are, in fact, quite liquid and can be purchased without jeopardizing the
liquidity of the Trust's portfolio.
Certain state securities regulators previously required mutual funds to
have a fundamental policy limiting investment in restricted securities. Since
the enactment of NSMIA, states no longer have the jurisdiction to impose such
requirements. Furthermore, rules adopted by the SEC have substantially increased
the number of restricted securities that can now be considered liquid and, in
addition, have given to the Trustees the ability to determine, under specific
guidelines, that a security is liquid. The Trustees may delegate this duty to
the investment adviser provided the investment adviser's determination of
liquidity is made in accordance with the guidelines established and monitored by
the Trustees.
The Trust's current restricted securities policy prevents the Trust
from acquiring a restricted security that may be viewed by the Trust's
investment adviser as liquid. As a result, the Trust's management has suggested
that the policy be revised to allow the Trust greater flexibility to invest in
restricted securities that are considered to be liquid under the Trust's
guidelines on such securities. The revised policy will also increase the Trust's
limitation on investments in restricted securities from 10% to 15% of its net
assets. The SEC takes the position that an investment company, other than a
money market fund, should not invest more than 15% of its net assets in
restricted securities. The proposed non-fundamental restriction would comply
with the SEC's guidelines. Finally, it has been proposed that the revised
restricted securities policy be made non-fundamental. Establishing the policy as
non-fundamental would enable the Trust to change this restriction in the future
without shareholder approval.
Upon the approval of the elimination of the existing fundamental policy
on investing in restricted securities, the Trust would become subject to the
following non-fundamental restriction:
"The Trust may invest in restricted securities. Restricted securities
are any securities in which the Trust may invest pursuant to its
investment objective and policies but which are subject to restrictions
on resale under federal securities law. Under criteria established by
the Trustees, certain restricted securities are determined to be
liquid. To the extent that restricted securities are not determined to
be liquid, the Trust will limit their purchase, together with other
illiquid securities, to 15% of its net assets."
In conjunction with this, it is also proposed that the Trust's
fundamental investment limitation relating to illiquid securities be amended and
made non-fundamental. The Trust is presently subject to an investment policy
pertaining to illiquid securities that provides:
"The Trust will not invest more than 10% of its total assets in
securities which are illiquid, including repurchase agreements
providing for settlement in more than seven days after notice."
There is no legal requirement that the Trust have a fundamental
investment policy on this subject. Accordingly, the Board believes that it
should be made non-fundamental for the Trust, and amended to render it
consistent with the standardized disclosure utilized by the Federated Funds. The
amendment will also increase the Trust's ability to invest in illiquid
securities from 10% to 15% of its net assets. The SEC takes the position that an
investment company, other than a money market fund, should not invest more than
15% of its net assets in illiquid securities. The proposed non-fundamental
restriction would comply with the SEC's guidelines. Establishing the policy as
non-fundamental would enable the Trust to change this restriction in the future
without shareholder approval. However, the Trust's investment adviser does not
expect this change to have a material impact on the Trust's operations.
Upon the approval of the elimination of the existing fundamental policy
on investing in illiquid securities, the Trust would become subject to the
following non-fundamental restriction:
"The Trust will not purchase securities for which there is no readily
available market, or enter into repurchase agreements or purchase time
deposits maturing in more than seven days, if immediately after and as
a result, the value of such securities would exceed, in the aggregate,
15% of the Trust's net assets."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(k): TO AMEND, AND TO MAKE NON-FUNDAMENTAL, THE TRUST'S FUNDAMENTAL
INVESTMENT POLICY REGARDING TEMPORARY INVESTMENTS
The Trust currently has a fundamental investment policy pertaining to
temporary investments. The policy states that:
"The Trust may invest temporarily in cash and cash items during times
of unusual market conditions for defensive purposes and to maintain
liquidity. Cash items may include short-term obligations such as:
- commercial paper rated A-1 or A-2 by Standard & Poor's
Corporation, Prime-1 or Prime-2 by Moody's Investors Service,
Inc., or F-1 or F-2 by Fitch Investors Service. In the case where
commercial paper has received different ratings from different
rating services, such commercial paper is an acceptable temporary
investment so long as at least two ratings are high quality
ratings and provided the investment adviser has determined that
such investments present minimal credit risks;
- time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the FDIC
or in institutions whose accounts are insured by the FSLIC,
including certificates of deposit issued by and other time
deposits in foreign branches of FDIC insured banks;
- bankers' acceptances issued by an FDIC insured bank, or issued by
the bank's Edge Act subsidiary and guaranteed by the bank, with
remaining maturities of nine months or less. The total acceptances
of any bank held by the Trust cannot exceed 0.25% of such bank's
total deposits according to the bank's last published statement of
condition preceding the date of acceptance;
- obligations of the U.S. government or its agencies or
instrumentalities; and
- repurchase agreements collateralized by eligible investments."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, to maximize the Trust's investment flexibility, it is
proposed that the Trust's existing fundamental policy be simplified, and
replaced with a non-fundamental investment policy that provides:
"The Trust may temporarily depart from its principal investment
strategies by investing its assets in cash, cash items and
shorter-term, higher-quality debt securities and similar obligations."
Establishing this policy as a non-fundamental policy will allow the
Trust to change the policy without shareholder approval. However, the Trust's
investment adviser does not expect this change to have a material impact on the
Trust's operations.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(l): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL INVESTMENT
POLICIES REGARDING PURCHASING PUT OPTIONS
The Trust is currently subject to fundamental investment policies
governing the purchase of put options that state:
"The Trust may attempt to hedge all or a portion of its portfolio
through the purchase of put options on portfolio securities and listed
put options on financial futures contracts for portfolio securities.
Put options on portfolio securities are intended to protect against
price movements in particular securities in the portfolio. Put options
on financial futures contracts will be used only to protect portfolio
securities against decreases in value resulting from market factors
such as an anticipated increase in interest rates. The Trust will not
purchase put options on securities unless the securities are held in
the Trust's portfolio."
These investment policies were initially adopted as fundamental
policies. However, the Trust is not required under the 1940 Act to have such
fundamental policies. Accordingly, it is proposed that the Trust's existing
fundamental policies governing put options be replaced with identical
non-fundamental policies. Establishing these policies as non-fundamental will
allow the Trust to change the policies without shareholder approval. However,
the Trust's investment adviser intends to continue to manage the Trust in the
same manner as presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(m): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL INVESTMENT
POLICIES REGARDING SELLING CALL OPTIONS
The Trust is presently subject to fundamental investment policies
governing its ability to deal in call options that state:
"The Trust may write covered call options to generate income. The
Trust may only sell listed call options either on securities held in
its portfolio or on securities which it has the right to obtain without
payment of further consideration (or has segregated cash in the amount
of any such additional consideration). The Trust reserves the right to
write covered call options on its entire portfolio. The Trust will not
write call options on securities unless the securities are held in the
Trust's portfolio or unless the Trust is entitled to them in
deliverable form without further payment or after segregating cash in
the amount of any further payment."
These investment policies were initially adopted as fundamental
policies. However, the Trust is not required under the 1940 Act to have such
fundamental policies. Accordingly, it is proposed that the Trust's existing
fundamental policies pertaining to call options be replaced with identical
non-fundamental policies. Establishing these policies as non-fundamental will
allow the Trust to change the policies without shareholder approval. However,
the Trust's investment adviser intends to continue to manage the Trust in the
same manner as presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(n): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING INVESTING IN WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust is presently subject to a fundamental investment policy
governing its ability to engage in when-issued and delayed delivery
transactions. The policy states:
"The Trust may invest in when-issued and delayed delivery transactions
to secure what is considered to be an advantageous price and yield for
the Trust."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to change this
policy, and the Trust's investment adviser expects the Trust to engage in
when-issued and delayed delivery transactions in the same manner as it presently
does.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #2(o): TO MAKE NON-FUNDAMENTAL THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY REGARDING ENTERING INTO REVERSE REPURCHASE AGREEMENTS
The Trust currently is subject to a fundamental investment policy
governing its entering into reverse repurchase agreements. The policy states
that "the Trust may enter into reverse repurchase agreements."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, it is proposed that the Trust's existing fundamental policy
be replaced with an identical non-fundamental policy. Establishing this policy
as a non-fundamental policy will allow the Trust to change the policy without
shareholder approval. However, the Trust has no present intention to change this
policy, and the Trust's investment adviser expects the Trust to enter into these
transactions in the same manner as presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3: ELIMINATION OF CERTAIN OF THE TRUST'S
FUNDAMENTAL INVESTMENT POLICIES
The Board has determined that certain of the Trust's current
fundamental investment policies are unnecessary and should be removed. Until
NSMIA was adopted in 1996, the securities laws of several states required every
investment company that intended to sell its shares in those states to adopt
policies governing a variety of operational issues, including investments in
certain securities. As a consequence of those restrictions, the Trust adopted
the investment policies described below and agreed that the policies would be
changed only upon the approval of shareholders. Since these prohibitions are no
longer required under current law, the management of the Trust has recommended,
and the Board has determined, that these policies should be removed. The removal
of these policies would provide greater flexibility in the management of the
Trust by permitting the Trust to purchase a broader range of securities that are
permitted investments and that are consistent with the Trust's investment
objective and policies.
The policies being removed are listed below. Each Proposal will be
voted on separately by the shareholders, and the approval of each change for the
Trust will require the affirmative vote of a majority of the outstanding voting
shares of the Trust as defined in the 1940 Act. (See "Proxies, Quorum and Voting
at the Meeting" below.)
PROPOSAL #3(a): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT
POLICY ON SELLING SECURITIES SHORT
The Trust is not required to have a fundamental investment restriction
with respect to short sales of securities. The Trust's policy states:
"The Trust will not sell securities short unless during the time the
short position is open, it owns an equal amount of the securities sold
or securities readily and freely convertible into or exchangeable,
without payment of additional consideration, for securities of the same
issuer as, and equal in amount to, the securities sold short, and not
more than 10% of the Trust's net assets (taken at current value) is
held as collateral for such sales at any one time."
To maximize the Trust's flexibility in this area, the Board believes
that the Trust's restriction on short sales of securities should be eliminated.
This restriction was imposed by state laws and NSMIA preempts that requirement.
Notwithstanding the elimination of this fundamental restriction, the Trust
expects to continue not to engage in short sales of securities, except to the
extent that the Trust contemporaneously owns or has the right to acquire, at no
additional cost, securities identical to, or convertible into or exchangeable
for, those sold short.
Upon the approval by shareholders of Proposal #3(a), the existing
fundamental restriction on selling securities short for the Trust will be
eliminated.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(b): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING
IN OIL, GAS AND MINERALS
The Trust is not required to have a fundamental restriction with
respect to investments in oil, gas or minerals. To maximize the Trust's
flexibility in this area, management of the Trust believes that the Trust's
fundamental investment policy prohibiting oil, gas and mineral investments
should be eliminated. These restrictions were imposed by state laws and NSMIA
preempts that requirement. Notwithstanding the elimination of this fundamental
policy, the Trust does not expect to invest, at this time, in oil, gas or
mineral exploration or development programs or leases.
Upon the approval by shareholders of Proposal #3(b), the following
fundamental policy prohibiting investments in oil, gas or minerals for the Trust
will be eliminated:
"The Trust will not purchase interests in oil, gas or other mineral
exploration or development programs, although it may purchase the
securities of issuers which invest in or sponsor such programs."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(c): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING
IN SECURITIES OF NEW ISSUERS
The Trust is not required to have a fundamental restriction with
respect to investing in securities of companies that have been in operation for
less than three years. This limitation was imposed by state laws and NSMIA
preempts that requirement. To maximize the Trust's investment flexibility, the
Board believes that the Trust's policy on investments in such companies should
be eliminated.
Upon the approval by shareholders of Proposal #3(c), the following
fundamental investment policy of the Trust will be eliminated:
"The Trust will not invest more than 5% of the value of its total
assets in portfolio instruments of unseasoned issuers, including their
predecessors, that have been in operation for less than three years."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(d): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING
IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
There is no legal requirement that the Trust have this fundamental
policy. This restriction was imposed by state laws and was preempted by NSMIA.
Moreover, the Board of the Trust and the Trust's investment adviser do not
believe this policy provides any safeguards against conflicts of interest that
are not already effectively covered under the Trust's Code of Ethics.
Accordingly, the Board believes that this restriction should be eliminated.
Upon the approval by shareholders of Proposal #3(d), the following
fundamental investment policy of the Trust will be eliminated:
"The Trust will not purchase or retain the securities of any issuer if
the officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together
own more than 5% of the issuer's securities."
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(e): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY ON INVESTING
FOR THE PURPOSE OF EXERCISING CONTROL
The Trust's current policy prohibits the acquisition of the securities
of an issuer for the purpose of exercising control over, or management of, any
company. The policy states:
"The Trust will not purchase securities of a company for the purpose of
exercising control or management."
"Control" is defined under the 1940 Act as owning 25% or more of the
voting securities of an issuer. A controlling ownership is likely to have an
effect on the outcome of any shareholder voting on changes related to the
operation of the issuing company.
When the Trust adopted this investment policy, it was required to be
fundamental by certain state securities regulators. Since the enactment of
NSMIA, those requirements no longer apply. Elimination of this policy would
clarify the Trust's ability to exercise freely its rights as a shareholder of
the companies in which it invests. The Trust, however, does not currently intend
to become involved in directing or administering the day-to-day operations of
any company. Upon the approval by shareholders of Proposal #3(e), it is
anticipated that the Trust's investment adviser will continue to operate the
Trust in the same manner as presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(f): TO REMOVE THE TRUST'S FUNDAMENTAL INVESTMENT POLICY REGARDING
SHORT-TERM TRADING
The Trust currently has a fundamental investment policy pertaining to
length of time portfolio securities are held. The policy states that:
"Although the Trust does not intend to invest for the purpose of
seeking short-term profits, securities in its portfolio will be sold
whenever the Trust's investment adviser believes it is appropriate to
do so in light of the Trust's investment objective, without regard to
the length of time a particular security may have been held."
This investment policy was initially adopted as a fundamental policy.
However, the Trust is not required under the 1940 Act to have such a fundamental
policy. Accordingly, to maximize the Trust's investment flexibility, the Trust's
investment adviser believes that the investment policy should be eliminated.
Upon the approval by shareholders of Proposal #3(f), it is intended that the
Trust's investment adviser will continue to operate the Trust by trading and
disposing of portfolio securities as necessary to meet the Trust's investment
objectives.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #3(g): TO ELIMINATE THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES
CONFINING INVESTMENTS TO INSTRUMENTS THAT ARE PERMITTED INVESTMENTS FOR
FEDERALLY CHARTERED SAVINGS AND LOAN INSTITUTIONS
The Trust currently is subject to a fundamental investment policy
governing its permissible investments. The policy confines the Trust's
investments to those securities that are permitted for purchase by federally
chartered savings and loans, and states:
"The Trust will limit its investments to those that are permitted
for purchase by federally chartered savings and loan institutions. The
Trust will only purchase put options on portfolio securities and listed
put options on financial futures contracts for portfolio securities,
and will only write covered call options and sell listed call options,
to the extent permitted under applicable Federal Home Loan Bank Board
Rules, regulations or interpretations thereof."
These investment policies were initially adopted as fundamental
policies. However, the Trust is not required under the 1940 Act to have such
fundamental policies. Accordingly, to maximize the Trust's investment
flexibility, the Trust's investment adviser believes that the investment
policies should be eliminated. Upon the approval by shareholders of Proposal
#3(g), it is anticipated that the Trust's investment adviser will continue to
operate the Trust in the same manner as presently.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4: TO APPROVE AMENDMENTS TO, AND A RESTATEMENT OF, THE TRUST'S
DECLARATION OF TRUST
Mutual funds, such as the Trust, are required to organize under the
laws of a state and to create and be bound by organizational documents outlining
how they will operate. In the case of the Trust, these organizational documents
are the Declaration of Trust and the By-Laws. Since the adoption of the Trust's
current Declaration of Trust, the market for mutual funds has evolved, requiring
mutual funds to be more flexible in their operation to respond quickly to
changes in the market. Certain items in the current Declaration of Trust,
described below, prohibit the Trust from responding quickly and favorably to
changing markets without going to the expense and delay of holding a shareholder
meeting.
Accordingly, the Trustees have approved, and have authorized the
submission to the Trust's shareholders for their approval, certain amendments to
the Trust's Declaration of Trust. The approval of each amendment will require
the affirmative vote of a majority of the outstanding voting shares of the Trust
entitled to vote, as described in the Declaration of Trust. (See "Proxies,
Quorum and Voting at the Meeting" below.)
PROPOSAL #4(a): TO AMEND AND RESTATE THE TRUST'S DECLARATION OF TRUST TO
REQUIRE THE APPROVAL OF A MAJORITY OF THE OUTSTANDING VOTING SHARES OF THE TRUST
IN THE EVENT OF THE SALE AND CONVEYANCE OF THE ASSETS OF THE TRUST TO ANOTHER
TRUST OR CORPORATION
Article XII, Section 4(b) of the Declaration of Trust currently
requires the approval of the holders of at least two-thirds of all of the
outstanding shares of the Trust to approve any sale and conveyance of the assets
of the Trust to another open-end management investment company. To reduce the
likelihood of greater expenses in a proposed solicitation for the approval of
any sale and conveyance, the Trustees have adopted an amendment that would
permit a majority vote to approve such a transaction. A majority vote means the
affirmative vote of: (a) 67% or more of the voting securities present at the
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy; or (b) more than 50% of the outstanding voting
securities, whichever is less. The amendment would provide the Trust with
greater flexibility, and in the event circumstances warrant the approval of the
Board, the Trustees could determine that a sale and conveyance of assets would
be in the best interest of the Trust. The Trustees are recommending that
shareholders approve the adoption of this proposed amendment to the Declaration
of Trust.
If approved by shareholders, Article XII, Section 4(b) of the
Declaration of Trust would be amended to read as follows:
"(b) The Trustees, with the approval of a Majority Shareholder Vote
of each Series or Class, may sell and convey the assets of the Trust,
or a Class or Series of the Trust, to another trust or corporation
organized under the laws of any State of the United States, which is a
diversified open-end management investment company as defined in the
1940 Act, for an adequate consideration which may include the
assumption of all outstanding obligations, taxes and other liabilities,
accrued or contingent, of the Trust, of each Class or Series of the
Trust, and which may include shares of beneficial interest or stock of
such trust or corporation. Upon making provision for the payment of all
such liabilities, by such assumption or otherwise, the Trustees shall
distribute the remaining proceeds belonging to each Series or Class
ratably among the holders of the Shares of that Series or Class of the
Trust, then outstanding. For the purposes of this provision, a
"Majority Shareholder Vote" means the affirmative vote of the lesser
of: (a) more than 50% of the outstanding voting securities entitled to
vote upon the matter, or (b) 67% or more of the voting securities
present at the meeting if the holders of 50% or more of the outstanding
voting securities entitled to vote on the matter are present at the
meeting in person or by proxy."
In the event that the amendment to Article XII, Section 4(b) is not
approved by shareholders, this section of the Declaration of Trust will remain
as it currently exists, and the Board of Trustees will consider what action, if
any, should be taken.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
PROPOSAL #4(b): TO AMEND AND RESTATE THE TRUST'S DECLARATION OF TRUST TO
PERMIT THE BOARD OF TRUSTEES TO LIQUIDATE ASSETS OF THE TRUST, ITS SERIES OR
CLASSES, AND DISTRIBUTE THE PROCEEDS OF SUCH ASSETS TO THE HOLDERS OF SUCH
SHARES REPRESENTING SUCH INTERESTS, WITHOUT SEEKING SHAREHOLDER APPROVAL
Shareholders are being asked to approve an amendment to the Trust's
Declaration of Trust to permit the Trustees to sell and convert into money
(i.e., liquidate) all the assets of the Trust, or any series or class of the
Trust, and then redeem all outstanding shares of any series or class of the
Trust. Currently, a majority vote of shareholders is required to liquidate the
Trust, or any affected series or class of which shares are outstanding. The
Trustees have determined that the current restriction presents a cumbersome
structure under which the best interest of all of the Trust's shareholders may
not be served. By requiring the Trustees to solicit a shareholder vote, by
means of a proxy solicitation and special meeting of shareholders, the
Declaration of Trust greatly hinders the Trustees' ability to effectively act
on decisions about the continued viability of the Trust. If it is determined
that it is no longer advisable to continue the Trust, or any series or class
of the Trust, it may not be in the best interest of shareholders to incur the
substantial additional expense of a shareholder meeting when it is more
important to preserve those assets that remain. If this proposal is approved
by shareholders, the Trustees will be authorized to liquidate a series or
class of the Trust by Board action without a further shareholder vote. The
Trustees have no present intention of liquidating the Trust.
If approved by shareholders, Article XII, Section 4(c) of the
Declaration of Trust will be amended to read as follows:
"The Trustees may at any time sell and convert into money all the
assets of the Trust or any Series or Class, without shareholder
approval, unless otherwise required by applicable law. Upon making
provision for the payment of all outstanding obligations, taxes and
other liabilities, accrued or contingent, belonging to each Series or
Class, the Trustees shall distribute the remaining assets belonging to
each Series or Class ratably among the holders of the outstanding
Shares of that Series or Class."
The Trustees believe that the interest of the shareholders is
adequately protected by this provision, as the liquidation would require the
conversion of the assets of the Trust to cash, which will thereafter be
distributed to shareholders pro rata. It is believed that this will result in
the return to shareholders of substantially the same value as would be provided
to the shareholders by a redemption resulting in the payment to the shareholders
of the then current net asset value of the shares owned by the shareholders.
Accordingly, the Trustees have approved, and have authorized the submission to
the Trust's shareholders for their approval, an amendment to the Trust's
Declaration of Trust.
In the event that the amendment to the Declaration of Trust to allow
the Trustees to liquidate assets of the Trust, or of a series or class thereof,
is not approved by the shareholders, the Declaration of Trust will remain as it
currently exists and the Trustees will consider what action, if any, should be
taken.
THE BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSAL
INFORMATION ABOUT THE TRUST
Proxies, Quorum and Voting at the Meeting
Only shareholders of record on the Record Date will be entitled to
vote at the Meeting. Each share of the Trust is entitled to one vote. Fractional
shares are entitled to proportionate shares of one vote. Under both the
Investment Company Act of 1940 and the Declaration of Trust, the favorable vote
of a "majority of the outstanding voting shares" of the Trust means: (a) the
holders of 67% or more of the outstanding voting securities present at the
Meeting, if the holders of 50% or more of the outstanding voting securities of
the Trust are present or represented by proxy; or (b) the vote of the holders of
more than 50% of the outstanding voting securities, whichever is less. The
favorable vote of a majority of the outstanding voting shares of the Trust is
required to approve each of the Proposals, except the election of the Trustees.
Trustees will be elected by a plurality vote.
Any person giving a proxy has the power to revoke it any time prior to
its exercise by executing a superseding proxy or by submitting a written notice
of revocation to the Secretary of the Trust. In addition, although mere
attendance at the Meeting will not revoke a proxy, a shareholder present at the
Meeting may withdraw his or her proxy and vote in person. All properly executed
and unrevoked proxies received in time for the Meeting will be voted in
accordance with the instructions contained in the proxies. If no instruction is
given on the proxy, the persons named as proxies will vote the shares
represented thereby in favor of the matters set forth in the attached Notice.
In order to hold the Meeting, a "quorum" of shareholders must be
present. Holders of at least one-fourth of the total number of outstanding
shares of the Trust entitled to vote at the Meeting, present in person or by
proxy, shall be required to constitute a quorum for the purpose of voting on all
proposals.
For purposes of determining a quorum for transacting business at the
Meeting, abstentions and broker "non-votes" (that is, proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owner or other persons entitled to vote shares on a particular matter
with respect to which the brokers or nominees do not have discretionary power)
will be treated as shares that are present but which have not been voted. For
this reason, abstentions and broker non-votes will have the effect of a "no"
vote for purposes of obtaining the requisite approval of some of the proposals.
If a quorum is not present, the persons named as proxies may vote those
proxies which have been received to adjourn the Meeting to a later date. In the
event that a quorum is present but sufficient votes in favor of one or more of
the proposals have not been received, the persons named as proxies may propose
one or more adjournments of the Meeting to permit further solicitations of
proxies with respect to such proposal(s). All such adjournments will require the
affirmative vote of a majority of the shares present in person or by proxy at
the session of the Meeting to be adjourned. The persons named as proxies will
vote AGAINST any such adjournment those proxies which they are required to vote
against the proposal and will vote in FAVOR of the adjournment other proxies
which they are authorized to vote. A shareholder vote may be taken on other
proposals in this Proxy Statement prior to any such adjournment if sufficient
votes have been received for approval.
As referred to in this Proxy Statement, the "Federated Fund Complex,"
"The Funds" or "Funds" include the following investment companies: Cash Trust
Series, Inc.; Cash Trust Series II; CCB Funds; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.; Federated ARMs
Fund; Federated Core Trust; Federated U.S. Government Bond Fund; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated U.S. Government Bond Fund; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free
Trust; Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S. Government
Securities Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10
Years; Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Edward D. Jones & Co. Daily Passport Cash Trust; Liberty Term Trust, Inc. -
1999; Liberty U.S. Government Money Market Trust; Managed Series Trust; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Regions Funds; RIGGS Funds; Tax-Free Instruments Trust; The
Planters Funds; WesMark Funds; WCT Funds; and World Investment Series, Inc.
Share Ownership of the Trustees
Officers and Trustees of the Trust own less than 1% of the Trust's outstanding
shares.
At the close of business on the Record Date, the following person owned, to
the knowledge of management, more than 5% of the outstanding shares of the
Trust: Charles Schwab & Co. Inc., San Francisco, CA, on behalf of various
customer accounts, owned approximately 1,251,250.27 shares (10.22%).
Trustee Compensation
Name and Position Aggregate Total Compensation Paid
With Trust Compensation From From Fund Complex+
Trust 1 #
- ---------------------------------------- ---------------------- ----------------------------------------------------------
John F. Donahue*@ $0 $0 for the Trust and 54 other
Chairman and Trustee investment companies in the Fund Complex
Thomas G. Bigley $1,075.42 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
John T. Conroy, Jr. $1,183.15 $125,264.48 for the Trust and 54 other
Trustee investment companies in the Fund Complex
William J. Copeland $1,183.15 $125,264.48 for the Trust and 54 other
Trustee investment companies in the Fund Complex
Lawrence D. Ellis, M.D.* $1,075.42 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
Peter E. Madden $1,075.42 $125,264.48 for the Trust and 54 other
Trustee investment companies in the Fund Complex
Charles F. Mansfield, Jr.** $0 $0 for the Trust and 50 other
Trustee investment companies in the Fund Complex
John E. Murray, Jr., J.D., S.J.D.@ $1,075.42 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
Marjorie P. Smuts $1,075.42 $113,860.22 for the Trust and 54 other
Trustee investment companies in the Fund Complex
John S. Walsh** $0 $0 for the Trust and 48 other
Trustee investment companies in the Fund Complex
1 Information is furnished for the fiscal year ended August 31, 1999.
# The aggregate compensation is provided for the Trust which is comprised of one
portfolio.
+ The information is provided for the last calendar year.
* The Trustee is deemed to be an "interested person" as defined in the 1940 Act.
@ Member of the Executive Committee.
If the Nominees are elected by shareholders at the Meeting, it is
anticipated that Mr. Copeland will resign as a Trustee.
** Messrs. Mansfield and Walsh became members of the Board of Trustees on
January 1, 1999. They did not receive any fees from the Fund Complex as of the
last calendar year.
During the fiscal year ended August 31, 1999, there were four meetings
of the Board of Trustees. The interested Trustees, other than Dr. Ellis, do not
receive fees from the Trust. Dr. Ellis is an interested person by reason of the
employment of his son-in-law by Federated Securities Corp. All Trustees were
reimbursed for expenses for attendance at Board of Trustees meetings.
The Executive Committee of the Board of Trustees handles the
responsibilities of the Board between meetings of the Board. Other than its
Executive Committee, the Trust has one Board committee, the Audit Committee.
Generally, the function of the Audit Committee is to assist the Board of
Trustees in fulfilling its duties relating to the Trust's accounting and
financial reporting practices and to serve as a direct line of communication
between the Board of Trustees and the independent auditors. The specific
functions of the Audit Committee include recommending the engagement or
retention of the independent auditors, reviewing with the independent auditors
the plan and the results of the auditing engagement, approving professional
services provided by the independent auditors prior to the performance of such
services, considering the range of audit and non-audit fees, reviewing the
independence of the independent auditors, reviewing the scope and results of the
Trust's procedures for internal auditing, and reviewing the Trust's system of
internal accounting controls.
For the most recently completed fiscal year, Messrs. Conroy, Madden and
Murray served on the Audit Committee. These Trustees are not interested Trustees
of the Trust. During the fiscal year ended August 31, 1999, there were two
meetings of the Audit Committee. All of the members of the Audit Committee were
present for each meeting. Each member of the Audit Committee receives an annual
fee of $100 plus $25 for attendance at each meeting and is reimbursed for
expenses of attendance.
Officers and Incumbent Trustees of the Trust
The executive officers of the Trust are elected annually by the Board
of Trustees. Each officer holds the office until qualification of his successor.
The names and birthdates of the executive officers of the Trust, as well as of
the incumbent Trustees who have previously been elected by shareholders, and
their principal occupations during the last five years, are set forth below:
John F. Donahue
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Date Became a Trustee and on Officer: May 24, 1985 and November 20, 1986
Chief Executive Officer and Director or Trustee of the Federated Fund
Complex; Chairman and Director, Federated Investors, Inc.; Chairman and Trustee,
Federated Investment Management Company; Chairman and Director, Federated
Investment Counseling and Federated Global Investment Management Corp.;
Chairman, Passport Research, Ltd.; Mr. Donahue is the father of J. Christopher
Donahue, Executive Vice President of the Trust and Nominee for Trustee.
John T. Conroy, Jr.
Wood/IPC Commercial Dept.
John R. Wood Associates, Inc. Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
Date Became a Trustee: August 21, 1991
Director or Trustee of the Federated Fund Complex; President, Investment
Properties Corporation; Senior Vice President, John R. Wood and Associates,
Inc., Realtors; Partner or Trustee in private real estate ventures in Southwest
Florida; formerly: President, Naples Property Management, Inc. and Northgate
Village Development Corporation.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Date Became a Director: May 24, 1985
Director or Trustee of the Federated Fund Complex; Director and Member of the
Executive Committee, Michael Baker Corp. (engineering, construction, operations
and technical services); Chairman, Pittsburgh Foundation; Director, Forbes Fund
(philanthropy); formerly: Vice Chairman and Director, PNC Bank, N.A. and PNC
Bank Corp.; Director, Ryan Homes, Inc. Previous Positions: Director, United
Refinery; Chairman, Pittsburgh Civic Light Opera; Chairman, Health Systems
Agency of Allegheny County; Vice President, United Way of Allegheny County;
President, St. Clair Hospital; Director, Allegheny Hospital.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue
Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Date Became a Trustee: August 26, 1987
Director or Trustee of the Federated Fund Complex; Professor of Medicine,
University of Pittsburgh; Medical Director, University of Pittsburgh Medical
Center-Downtown; Hematologist, Oncologist, and Internist, University of
Pittsburgh Medical Center; Member, National Board of Trustees, Leukemia Society
of America.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Date Became a Trustee: August 21, 1991
Director or Trustee of the Federated Fund Complex; formerly: Representative,
Commonwealth of Massachusetts General Court; President, State Street Bank and
Trust Company and State Street Corporation. Previous Positions: Director, VISA
USA and VISA International; Chairman and Director, Massachusetts Bankers
Association; Director, Depository Trust Corporation; Director, The Boston Stock
Exchange.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Date Became a Trustee: May 24, 1985
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning. Previous Positions: National
Spokesperson, Aluminum Company of America; television producer; business
owner.
Glen R. Johnson
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 2, 1929
President
Date Became an Officer: November 20, 1986
Staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
Date Became an Officer: June 1, 1995
President or Executive Vice President of the Federated Fund Complex; Director or
Trustee of some of the Funds in the Federated Fund Complex; President, Chief
Executive Officer and Director, Federated Investors, Inc.; President and
Trustee, Federated Investment Management Company and Federated Investment
Counseling; President and Director, Federated Global Investment Management
Corp.; President, Passport Research, Ltd.; Trustee, Federated Shareholder
Services Company; Director, Federated Services Company. Mr. Donahue is the son
of John F. Donahue, Chairman and Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Date Became an Officer: June 1, 1995
Trustee or Director of some of the Funds in the Federated Fund Complex;
President, Executive Vice President and Treasurer of some of the Funds in the
Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Vice
President, Federated Investment Management Company, Federated Investment
Counseling, Federated Global Investment Management Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
John W. McGonigle
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Date Became an Officer: May 23, 1985
Executive Vice President and Secretary of the Federated Fund Complex; Executive
Vice President, Secretary, and Director, Federated Investors, Inc.; Trustee,
Federated Investment Management Company and Federated Investment Counseling;
Director, Federated Global Investment Management Corp.; Director, Federated
Services Company; Director, Federated Securities Corp.
Richard B. Fisher
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Date Became an Officer: May 23, 1985
President or Vice President of some of the Funds in the Federated Fund Complex;
Director or Trustee of some of the Funds in the Federated Fund Complex;
Executive Vice President, Federated Investors, Inc.; Chairman and Director,
Federated Securities Corp.
Richard J. Thomas
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: June 17, 1954
Treasurer
Date Became an Officer: November 19, 1998
Treasurer of the Federated Fund Complex; Vice President - Funds Financial
Services Division, Federated Investors, Inc.; formerly: various management
positions within Funds Financial Services Division of Federated Investors,
Inc.
William D. Dawson, III
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: March 3, 1949
Chief Investment Officer
Date Became an Officer: November 19, 1998
Chief Investment Officer of the Trust and various other Funds in the Federated
Fund Complex; Executive Vice President, Federated Investment Counseling,
Federated Global Investment Management Corp., Federated Investment Management
Company and Passport Research, Ltd.; Registered Representative, Federated
Securities Corp.; Portfolio Manager, Federated Administrative Services, Vice
President, Federated Investors, Inc.; formerly: Executive Vice President and
Senior Vice President, Federated Investment Counseling Institutional Portfolio
Management Services Division; Senior Vice President, Federated Investment
Management Company, and Passport Research, Ltd.
Susan M. Nason
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
Birthdate: August 29, 1961
Vice President
Date Became an Officer: November 19, 1998
Vice President, Federated Investment Management Company.
None of the Officers of the Trust received salaries from the Trust
during the fiscal year ended August 31, 1999.
OTHER MATTERS AND DISCRETION OF ATTORNEYS NAMED IN THE PROXY
The Trust is not required, and does not intend, to hold regular annual
meetings of shareholders. Shareholders wishing to submit proposals for
consideration for inclusion in a proxy statement for the next meeting of
shareholders should send their written proposals to Federated U.S. Government
Bond Fund, Federated Investors Funds, 5800 Corporate Drive, Pittsburgh,
Pennsylvania 15237-7000, so that they are received within a reasonable time
before any such meeting.
No business other than the matters described above is expected to come
before the Meeting, but should any other matter requiring a vote of shareholders
arise, including any question as to an adjournment or postponement of the
Meeting, the persons named on the enclosed proxy card will vote on such matters
according to their best judgment in the interests of the Trust.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES.
By Order of the Board of Trustees,
John W. McGonigle
Secretary
October 12, 1999
FEDERATED U.S. GOVERNMENT BOND FUND
Investment Adviser
FEDERATED INVESTMENT MANAGEMENT COMPANY
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Distributor
FEDERATED SECURITIES CORP.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Administrator
FEDERATED SERVICES COMPANY
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
KNOW ALL PERSONS BY THESE PRESENTS that the undersigned Shareholders of
Federated U.S. Government Bond Fund (the "Trust"), hereby appoint Patricia F.
Conner, Gail Cagney, William Haas, Suzanne W. Land and Ann M. Scanlon, or any
one of them, true and lawful attorneys, with the power of substitution of each,
to vote all shares of the Trust which the undersigned is entitled to vote at the
Special Meeting of Shareholders (the "Meeting") to be held on November 15, 1999,
at 5800 Corporate Drive, Pittsburgh, Pennsylvania, at 2:00 p.m. and at any
adjournment thereof.
The attorneys named will vote the shares represented by this proxy in accordance
with the choices made on this ballot. If no choice is indicated as to the item,
this proxy will be voted affirmatively on the matters. Discretionary authority
is hereby conferred as to all other matters as may properly come before the
Meeting or any adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES OF FEDERATED U.S.
GOVERNMENT BOND FUND. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSALS.
By checking the box "FOR" below, you will vote to approve each of the proposed
items in this proxy, and to elect each of the nominees as Trustees of the Trust
FOR [ ]
Proposal 1 To elect Thomas G. Bigley, John F. Cunningham, Charles F.
Mansfield, Jr., John E. Murray, Jr. and John S. Walsh as
Trustees of the Trust
FOR [ ]
WITHHOLD AUTHORITY
TO VOTE [ ]
VOTE FOR ALL EXCEPT [ ]
If you do not wish your shares to be voted "FOR"
a particular nominee, mark the "VOTE FOR ALL
EXCEPT" box and strike a line through the name of
each nominee for whom you are NOT voting. Your
shares will be voted for the remaining nominees.
Proposal 2 To make changes to the Trust's fundamental investment policies:
Approval of all proposed changes to the Trust's fundamental
investment policies
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
To vote against the proposed changes to one or more of the specific fundamental
investment policies, but to approve all others, indicate the number(s) (as set
forth in the Proxy Statement) of the investment policy(ies) you do not want to
change on the line below. Please see the Notice of the Proxy Statement for the
Proposal topics.
Proposal 3 To eliminate certain of the Trust's fundamental investment policies:
Approval of the six proposed eliminations of the Trust's fundamental investment
policies
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
To vote against the proposed elimination of one or more of the
specific fundamental investment policies, but to approve the
elimination of the others, indicate the number(s) (as set
forth in the Proxy Statement) of the investment policy(ies)
you do not want to eliminate on the line below. Please see the
Notice of the Proxy Statement for the Proposal topics.
Proposal 4 To approve amendments to, and a restatement of, the Trust's
Declaration of Trust:
4(a) To approve an amendment to and restatement of the Trust's
Declaration of Trust to require the approval by a majority of
the outstanding voting shares in the event of the sale or
conveyance of the assets of the Trust to another trust or
corporation
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
4(b) To approve an amendment to and restatement of the Trust's
Declaration of Trust to permit the Board of Trustees to
liquidate assets of the Trust, or of its series or classes,
and distribute the proceeds of such assets without seeking
shareholder approval
FOR [ ]
AGAINST [ ]
ABSTAIN [ ]
YOUR VOTE IS
IMPORTANT Please
complete, sign and
return this card
as soon as
possible.
Dated
Signature
Signature (Joint Owners)
Please sign this proxy exactly as your name appears on the books of the Trust.
Joint owners should each sign personally. Directors and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
You may also vote your shares by touchtone phone
by calling 1-800-690-6903 or through the
Internet at www.proxyvote.com