LIBERTY U S GOVERNMENT MONEY MARKET TRUST, 497, 1995-05-26

LIBERTY U S GOVERNMENT MONEY MARKET TRUST
497, 1995-05-26

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LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST

CLASS A SHARES
CLASS B SHARES
COMBINED PROSPECTUS

The shares of Liberty U.S. Government Money Market Trust (the "Trust") represent
interests in an open-end, diversified management investment company (a mutual
fund) that seeks current income by investing in a professionally managed
diversified portfolio limited to U.S. government securities.

The Trust offers two classes of shares. Class A Shares are offered at net asset
value; Class B Shares are designed primarily for temporary investment as part of
an investment program in the Liberty Family of Funds Class B Shares, and unlike
shares of most money market funds, are offered at net asset value, plus an
annual distribution fee, an annual service fee, and a declining contingent
deferred sales charge on redemtions made within six years.

THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.

This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.

The Trust has also filed a Combined Statement of Additional Information dated
May 31, 1995, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information free of charge by calling 1-800-235-4669. To obtain
other information or to make inquiries about the Trust, contact your financial
institution.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Prospectus dated May 31, 1995

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TABLE OF CONTENTS

Summary of Trust Expenses......................................................1

Financial Highlights...........................................................3

Synopsis.......................................................................5

Liberty Family of Funds........................................................6

Investment Information.........................................................7
Investment Objective.........................................................7
Investment Policies..........................................................7
Investment Limitations.......................................................8
Regulatory Compliance........................................................8

Net Asset Value................................................................9

How To Purchase Shares........................................................10

Purchasing Shares Through
a Financial Institution..................................................10

Purchasing Shares By Wire...................................................11

Purchasing Shares By Check..................................................11

Systematic Investment Program...............................................11

Exchange Privilege............................................................11
Requirements for Exchange...................................................11
Tax Consequences............................................................12
Making an Exchange..........................................................12

How To Redeem Shares..........................................................13
Special Redemption Features.................................................14
Contingent Deferred Sales Charge............................................14
Elimination of Contingent
Deferred Sales Charge....................................................15

Account and Share Information.................................................16

Trust Information.............................................................17
Management of the Trust.....................................................17
Distribution of Shares......................................................18
Administration of the Trust.................................................19
Expenses of the Trust and
Class B Shares...........................................................20

Tax Information...............................................................21
Federal Income Tax..........................................................21
Pennsylvania Corporate and
Personal Property Taxes..................................................21

Performance Information.......................................................21

- --------------------------------------------------------------------------------

SUMMARY OF TRUST EXPENSES

LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST

<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).......................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)..................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
ANNUAL CLASS A SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)............................................................................... 0.49%
12b-1 Fee....................................................................................................... None
Total Other Expenses............................................................................................ 0.64%
Shareholder Services Fee (after waiver) (3)...................................................... 0.05%
Total Class A Shares Operating Expenses (4)............................................................ 1.13%

</TABLE>

(1) Shareholders who purchased Shares of the Trust through an exchange of shares
of another Liberty Family Fund, may be charged a contingent deferred sales
charge by the Trust's distributor of .50 of 1% based upon the terms and
conditions applicable to redemptions of the Class A Shares of the Liberty
Family Fund originally purchased. See "Contingent Deferred Sales Charge."

(2) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The advisor can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
.50% of the first $500 million in average daily net assets, .475% of the
second $500 million in average daily net assets, .45% of the third $500
million in average daily net assets, .425% of the fourth $500 million in
average daily net assets, and .40% of average daily net assets in excess of
$2 billion.

(3) The maximum shareholder services fee is 0.25%.

(4) The total Class A Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending March 31, 1996. The total
Class A Shares Operating Expenses were 1.12% for the fiscal year ended March
31, 1995.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES OF THE TRUST
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "HOW TO PURCHASE SHARES", "EXCHANGE PRIVILEGE",
"HOW TO REDEEM SHARES", AND "TRUST INFORMATION." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 year 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption
at the end of each period............................................... $17 $36 $62 $137
You would pay the following expenses on the same investment, assuming no
redemption.............................................................. $12 $36 $62 $137
</TABLE>

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------

SUMMARY OF TRUST EXPENSES

LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST

<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)....................................................... 5.50%
Redemption Fee (as a percentage of amount redeemed, if applicable)................................................ None
Exchange Fee...................................................................................................... None

ANNUAL CLASS B SHARES OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (2)................................................................................. 0.49%
12b-1 Fee......................................................................................................... 0.75%
Total Other Expenses.............................................................................................. 0.70%
Shareholder Services Fee (after waiver) (3)........................................................ 0.11%
Total Class B Shares Operating Expenses (4) (5)........................................................... 1.94%

</TABLE>

(1) The contingent deferred sales charge reflected is 5.50% in the first year,
declining to 1.00% in the sixth year and 0.00% thereafter. This is the
highest such schedule applicable to Shares of the Trust. (See "Contingent
Deferred Sales Charge.")

(3) The maximum shareholder services fee is 0.25%.

(4) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.

(5) The total Class B Shares Operating Expenses in the table above are based on
expenses expected during the fiscal year ending March 31, 1996. The total
Class B Shares Operating Expenses were 1.95% for the fiscal year ended March
31, 1995.

THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS B SHARES OF THE TRUST
WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE
VARIOUS COSTS AND EXPENSES, SEE "HOW TO PURCHASE SHARES", "EXCHANGE PRIVILEGE",
"HOW TO REDEEM SHARES", AND "TRUST INFORMATION." Wire-transferred redemptions of
less than $5,000 may be subject to additional fees.

Long-term shareholders may pay more than the economic equivalent of the
maximum front-end sales load permitted under the rules of the National
Association of Securities Dealers, Inc.

<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period (a)............................. $76 $105
You would pay the following expenses on the same investment, assuming no redemption............... $20 $61
</TABLE>

(a) Assumes the highest applicable contingent deferred sales charge schedule.
See note (1) above.

THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS A SHARES

LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST

- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following table has been audited by Arthur Andersen LLP, the Trust's
independent public accountants. Their report, dated May 12, 1995, on the Trust's
financial statements for the year ended March 31, 1995, and on the following
table for each of the ten years in the periods presented is included in the
Annual Report, which is incorporated by reference. This table should be read in
conjunction with the Trust's financial statements and notes thereto, which may
be obtained free of charge from the Trust.

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991 1990 1989 1988 1987
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.04 0.02 0.03 0.05 0.07 0.08 0.07 0.06 0.05
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- -------------------------
Distributions to
shareholders from net
investment income (0.04) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.06) (0.05)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN(A) 3.93% 2.34% 2.71% 4.66% 7.11% 8.24% 7.44% 6.07% 5.48%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 1.12% 1.01% 1.04% 1.03% 1.01% 1.02% 1.01% 1.01% 1.01%
- -------------------------
Net investment income 3.83% 2.31% 2.69% 4.59% 6.89% 7.94% 7.19% 5.90% 5.39%
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $715,257 $805,907 $919,883 1,173,685 $1,393,380 $1,443,347 $1,386,704 $1,358,694 $1,467,182
- -------------------------

<CAPTION>
<S> <C>
1986
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.07
- ------------------------- ---------
LESS DISTRIBUTIONS
- -------------------------
Distributions to
shareholders from net
investment income (0.07)
- ------------------------- ---------
NET ASSET VALUE, END OF
PERIOD $ 1.00
- ------------------------- ---------
TOTAL RETURN(A) 7.16%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 0.98%
- -------------------------
Net investment income 6.95%
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $2,069,333
- -------------------------
</TABLE>

(a) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

- --------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS--CLASS B SHARES

LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
- --------------------------------------------------------------------------------

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following table has been audited by Arthur Andersen LLP, the Trust's
independent public accountants. Their report, dated May 12, 1995, on the Trust's
financial statements for the period ended March 31, 1995, and on the following
table for the period presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Trust's financial statements and notes thereto, which may be obtained free of
charge from the Trust.

<TABLE>
<CAPTION>
PERIOD ENDED
MARCH 31,
1995(A)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income 0.01
- ---------------------------------------------------------------------------------------------------- -------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders from net investment income (0.01)
- ---------------------------------------------------------------------------------------------------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00
- ---------------------------------------------------------------------------------------------------- -------
TOTAL RETURN(B) 1.14%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------
Expenses 1.95%(c)
- ----------------------------------------------------------------------------------------------------
Net investment income 4.15%(c)
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $186
- ----------------------------------------------------------------------------------------------------
</TABLE>

(a) Reflects operations for the period from December 17, 1994 (date of initial
public offering) to March 31, 1995.

(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.

- --------------------------------------------------------------------------------
SYNOPSIS

The Trust, formerly AARP U.S. Government Money Market Trust, was established as
a Massachusetts business trust under a Declaration of Trust dated August 30,
1979. The Trust's address is, Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. The Trust invests in U.S. government obligations
maturing in one year or less. The Trust is permitted, under its Declaration of
Trust, to offer separate series of shares representing interests in separate
portfolios of securities. The shares in any one portfolio may be offered in
separate classes. As of the date of this prospectus, the Board of Trustees
("Trustees") has established two classes of shares, known as Class A Shares and
Class B Shares (individually and collectively, as the context requires,
"Shares").

Shares of the Trust are designed primarily for individuals and institutions as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio primarily limited to U.S. government obligations. The
Trust attempts to stabilize the value of a Share at $1.00. However, a contingent
deferred sales charge is imposed under certain circumstances. For a more
complete description, see "How to Redeem Shares."

In addition, the Trust pays a distribution fee to the distributor at an annual
rate not to exceed 0.75% of the Class B Shares' average daily net assets. These
distribution fees, while exceeding those paid by certain other money market
funds, are comparable to fees paid by money market funds issuing comparable
shares. In addition the Trust also pays a Shareholder Services Fee at an annual
rate not to exceed 0.25% of average daily net assets. For a more complete
description, see "Distribution Plan and Shareholder Services Plans."

For information on how to purchase Shares of the Trust, please refer to "How to
Purchase Shares." The minimum initial investment for Class A Shares and Class B
Shares is $500, except for retirement plans.

Additionally, information regarding the exchange privilege offered with respect
to the Trust and certain other funds for which affiliates of Federated Investors
serve as principal underwriter ("Federated Funds") can be found under "Exchange
Privilege."

Federated Advisers is the investment adviser (the "Adviser") to the Trust and
receives compensation for its services. The Adviser's address is Federated
Investors Tower, Pittsburgh, Pennsylvania 15222-3779.

Investors should be aware of the following general observations. The Trust may
make certain investments and employ certain investment techniques that involve
risks, including entering into repurchase agreements and investing in
when-issued securities. These risks are described under "Investment Policies."

- --------------------------------------------------------------------------------

LIBERTY FAMILY OF FUNDS

This Trust is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Liberty Family of Funds are:

American Leaders Fund, Inc., providing growth of capital and income through
high-quality stocks;

Capital Growth Fund, providing appreciation of capital primarily through equity
securities;

Fund for U.S. Government Securities, Inc., providing current income through
long-term U.S. government securities;

International Equity Fund, providing long-term capital growth and income
through international securities;

International Income Fund, providing a high level of current income consistent
with prudent investment risk through high-quality debt securities denominated
primarily in foreign currencies;

Liberty Equity Income Fund, Inc., providing above-average income and capital
appreciation through income producing equity securities;

Liberty High Income Bond Fund, Inc., providing high current income through
high-yielding, lower-rated corporate bonds;

Liberty Municipal Securities Fund, Inc., providing a high level of current
income exempt from federal regular income tax through municipal bonds;

Liberty Utility Fund, Inc., providing current income and long-term growth of
income, primarily through electric, gas, and communications utilities;

Limited Term Fund, providing a high level of current income consistent with
minimum fluctuation in principal value through investment grade securities;

Limited Term Municipal Fund, providing a high level of current income exempt
from federal regular income tax consistent with the preservation of principal,
primarily limited to municipal securities;

Michigan Intermediate Municipal Trust, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the state
of Michigan and Michigan municipalities, primarily through Michigan municipal
securities;

Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;

Strategic Income Fund, providing a high level of current income, primarily
through domestic and foreign corporate debt obligations;

Tax-Free Instruments Trust, providing current income consistent with stability
of principal and exempt from federal income tax, through high-quality,
short-term municipal securities; and

World Utility Fund, providing total return primarily through securities issued
by domestic and foreign companies in the utilities industries.

Prospectuses for these Funds are available by writing to Federated Securities
Corp.

Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.

The Liberty Family of Funds provides flexibility and diversification for an
investor's long-term investment planning. It enables an investor to

meet the challenges of changing market conditions by offering convenient
exchange privileges which give access to various investment vehicles and by
providing the investment services of proven, professional investment advisers.

Shareholders of Class A Shares who have been designated as Liberty Life Members
are exempt from sales loads on future purchases in and exchanges between the
Class A Shares of any funds in the Liberty Family of Funds, as long as they
maintain a $500 balance in one of the Liberty Funds.

- --------------------------------------------------------------------------------
INVESTMENT INFORMATION

INVESTMENT OBJECTIVE

The investment objective of the Trust is stability of principal and current
income consistent with stability of principal. The Trust pursues this investment
objective by investing in a portfolio of U.S. government obligations maturing in
thirteen months (397 days) or less. The average maturity of U.S. government
securities in the Trust's portfolio, computed on a dollar-weighted basis, will
be 90 days or less. While there is no assurance that the Trust will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus. The investment objective and the policies and
limitations described below cannot be changed without approval of shareholders.

INVESTMENT POLICIES

ACCEPTABLE INVESTMENTS

The U.S. government securities in which the Trust invests are either issued or
guaranteed by the U.S. government, its agencies, or instrumentalities. These
securities include, but are not limited to:

direct obligations of the U.S. Treasury such as U.S. Treasury bills, notes, and
bonds;

obligations of U.S. government agencies or instrumentalities such as: the Farm
Credit System, including the National Bank for Cooperatives, Farm Credit Banks,
and Banks for Cooperatives; Farmers Home Administration; Federal Home Loan
Banks; and Federal National Mortgage Association; and

short-term instruments of banks and savings and loan associations in which the
principal is fully insured by the Bank Insurance Fund or the Savings
Association Insurance Fund, both

of which are administered by the Federal Deposit Insurance Corporation.

Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:

the issuer's right to borrow an amount limited to a specific line of credit
from the U.S. Treasury;

discretionary authority of the U.S. government to purchase certain obligations
of an agency or instrumentality; or

the credit of the agency or instrumentality.

INSTRUMENTS OF BANKS AND SAVINGS AND LOANS ASSOCIATIONS

The short-term instruments of banks and savings and loan associations which the
Trust can purchase will comprise no more than 20% of the Trust's total assets.

REPURCHASE AGREEMENTS

The U.S. government securities in which the Trust invests may be purchased
pursuant to repurchase agreements. Repurchase agreements are arrangements in
which banks, broker/dealers, and other recognized financial institutions sell
U.S. government or other securities to the Trust and agree at the time of sale
to repurchase them at a mutually agreed upon time and price.

As a matter of investment practice which can be changed without shareholder
approval, the Trust will not invest more than 10% of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.

WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS

The Trust may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions and the market values of the securities
purchased may vary from purchase prices. Accordingly, the Trust may pay more or
less than the market value of the securities on the settlement date.

The Trust may dispose of a commitment prior to settlement if the Adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.

INVESTMENT LIMITATIONS

The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.

REGULATORY COMPLIANCE

The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Combined Statement of Additional Information, in order to
comply

with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940, as amended. In particular,
the Trust will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Trust will determine the effective
maturity of its investments, according to Rule 2a-7. The Trust may change these
operational policies to reflect changes in the laws and regulations without the
approval of its shareholders.

- --------------------------------------------------------------------------------
NET ASSET VALUE

The Trust attempts to stabilize the net asset value of Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of Shares outstanding. The Trust, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.

The net asset value is determined at 12:00 noon (Eastern time) and 4:00 p.m.
(Eastern time), Monday through Friday, except on: (i) days on which there are
not sufficient changes in the value of the Trust's portfolio securities that its
net asset value might be materially affected; (ii) days during which no Shares
are tendered for redemption and no orders to purchase Shares are received; and
(iii) the following holidays: New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

CONVERSION OF CLASS B SHARES

Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month eight full years after the purchase date, except as noted
below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset values per share, without the imposition of any sales load, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of another
fund in the Liberty Family of Funds will convert into Class A Shares based on
the time of the initial purchase. For purposes of conversion to Class A

Shares, Shares purchased through the reinvestment of dividends and distributions
paid on Class B Shares will be considered to be held in a

separate sub-account. Each time any Class B Shares in the shareholder's account
(other than those in the sub-account) convert to Class A Shares, an equal pro
rata portion of the Class B Shares in the sub-account will also convert to Class
A Shares. The conversion of Class B Shares to Class A Shares is subject to the
continuing availability of a ruling from the Internal Revenue Service or an
opinion of counsel that such conversions will not constitute taxable events for
federal tax purposes. There can be no assurance that such ruling or opinion will
be available, and the conversion of Class B Shares to Class A Shares will not
occur if such ruling or opinion is not available. In such event, Class B Shares
would continue to be subject to higher expenses than Class A Shares for an
indefinite period.

- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES

Class A Shares and Class B Shares are sold at their net asset value next
determined after an order is received, on days on which the New York Stock
Exchange and the Federal Reserve Wire System are open for business. Shares may
be purchased as described below either through a financial institution (such as
a bank or broker/dealer) or by wire or by check directly from the Trust, with a
minimum initial investment of $500 or more or additional investments of as
little as $100. The minimum initial and subsequent investment for retirement
plans is only $50 (Financial institutions may impose different minimum
investment requirements on their customers.)

Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.

In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Trust
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Trust before shares can be purchased.

PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION

Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Trust
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.

PURCHASING SHARES BY WIRE

Shares may be purchased by wire by calling the Trust before 3:00 p.m. (Eastern
time). The order is considered received immediately. Payment by federal funds
must be received before 3:00 p.m. (Eastern time) in order to begin earning
dividends that same day. Federal funds should be wired as follows: State Street
Bank and Trust Company, Boston, MA; Attention; EDGEWIRE; For Credit to: ( Trust
Name); ( Trust Number) (this number can be found on the account statement or by
contacting the Trust) Group Number or Order Number; Nominee or Institution Name;
and ABA Number 011000028. Shares cannot be purchased by wire on holidays when
wire transfers are restricted.

PURCHASING SHARES BY CHECK

Shares may be purchased by sending a check made payable to the name of the Trust
to: (Trust Name) P.O. Box 8600, Boston, MA 02266-8600. Orders by mail are
considered received when payment by check is converted into federal funds
(normally the business day after the check is received) and shares begin earning
dividends the next day.

SPECIAL PURCHASE FEATURES

SYSTEMATIC INVESTMENT PROGRAM

Once a Trust account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account at
an Automated Clearing House ("ACH") member and invested in the Trust at the net
asset value next determined after an order is received by the Trust, plus the
sales load, if applicable. Shareholders should contact their financial
institution or the Trust to participate in this program.

- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE

CLASS A SHARES

Class A shareholders may exchange all or some of their Shares for Class A Shares
of other funds in the Liberty Family of Funds at net asset value. Neither the
Trust nor any of the funds in the Liberty Family of Funds imposes any additional
fees on exchanges.

CLASS B SHARES

Class B shareholders may exchange all or some of their Shares for Class B Shares
of other funds in the Liberty Family of Funds. (Not all funds in the Liberty
Family of Funds currently offer Class B Shares. Contact your financial
institution regarding the availability of other Class B Shares in the Liberty
Family of Funds). Exchanges are made at net asset value without being assessed a
contingent deferred sales charge on the exchanged Shares. To the extent that a
shareholder exchanges Shares for Class B Shares in other funds in the Liberty
Family of Funds, the time for which the exchanged-for Shares are to be held will
be added to the time for which exchanged-from Shares were held for purposes of
satisfying the applicable holding period.

REQUIREMENTS FOR EXCHANGE

Shareholders using this privilege must exchange shares having a net asset value
equal to the minimum investment requirements of the fund into which the exchange
is being made. Before the exchange, the shareholder must receive a prospectus of
the fund for which the exchange is being made.

This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper

instructions and required supporting documents, shares submitted for exchange
are redeemed and the proceeds invested in shares of the other fund. The exchange
privilege may be terminated at any time. Shareholders will be notified of the
termination of the exchange privilege.

Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the
Trust.

TAX CONSEQUENCES

An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending on the circumstances, a capital gain or loss may be
realized.

MAKING AN EXCHANGE

Instructions for exchanges for the Liberty Family of Funds or certain Federated
Funds may be given in writing or by telephone. Written instructions may require
a signature guarantee. Shareholders of the Trust may have difficulty in making
exchanges by telephone through brokers and other financial institutions during
times of drastic economic or market changes. If a shareholder cannot contact his
broker or financial institution by telephone, it is recommended that an exchange
request be made in writing and sent by overnight mail to Federated Services
Company, 500 Victory Road--2nd Floor, Quincy, Massachusetts 02171.

TELEPHONE INSTRUCTIONS

Telephone instructions made by the investor may be carried out only if a
telephone authorization form completed by the investor is on file with the
Trust. Telephone exchange instructions may be recorded. If the instructions are
given by a broker, a telephone authorization form completed by the broker must
be on file with the Trust. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations. If
reasonable procedures are not followed by the Trust, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.

Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, and deposited to the shareholder's account before being exchanged.
Telephone instructions will be processed as of 4:00 p.m. (Eastern time) and must
be received by the Trust before that time for shares to be exchanged the same
day. Shareholders exchanging into a fund will begin receiving dividends the
following business day. This privilege may be modified or terminated at any
time.

- --------------------------------------------------------------------------------

HOW TO REDEEM SHARES

Shares are redeemed at their net asset value next determined after the Trust
receives the redemption request. Redemptions will be made on days on which the
Trust computes its net asset value. Redemption requests must be received in
proper form and can be made as described below.

REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION

Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Services Company receives the redemption request. According to the shareholder's
instructions, redemption proceeds can be sent to the financial institution or to
the shareholder by check or by wire. The financial institution is responsible
for promptly submitting redemption requests and providing proper written
redemption instructions. Customary fees and commissions may be charged by the
financial institution for this service.

REDEEMING SHARES BY TELEPHONE

Redemptions in any amount may be made by calling the Trust provided the Trust
has a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time will include that day's dividends but will be
wired the following business day. Proceeds from redeemed shares purchased by
check or through ACH will not be wired until that method of payment has cleared.

Telephone instructions may be recorded and if reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.

In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Trust shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.

The financial institution which maintains investor accounts with the Trust must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (see "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (see
"Other Payments to Financial Institutions").

REDEEMING SHARES BY MAIL

Shares may be redeemed in any amount by mailing a written request to: Federated
Services Company, Trust Name, Trust Class, P.O. Box 8600, Boston, MA 02266-8600.

The written request should state: the Trust Name and class designation; the
account name as registered with the Trust; the account number; and the number of
shares to be redeemed or the dollar amount requested. All owners of the account
must sign the request exactly as the shares are registered. Any share
certificates should be sent by registered or certified mail with the written
request. Normally, a check for the proceeds is mailed within one business day,
but in no event more than seven days, after receipt of a proper written
redemption request.

Dividends are paid up to and including the day that a redemption request is
processed.

If you are requesting a redemption of any amount to be sent to an address other
than that on record with the Trust, or a redemption payable to a third party,
then all signatures appearing on the written request must be guaranteed by a
bank which is a member of the Federal Deposit Insurance Corporation, a trust
company, a member firm of a domestic stock exchange, or any other "eligible
guarantor institution," as defined by the Securities and Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.

The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.

Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.

SPECIAL REDEMPTION FEATURES
CHECK WRITING

Upon request, a checking account will be established to allow shareholders to
redeem their Trust Shares. A fee will be charged for this service. The check
writing service allows the shareholder to receive the daily dividend declared on
the Shares to be redeemed until the check is presented to State Street Bank for
payment. However, checks should never be made payable or sent to State Street
Bank or the Trust to redeem shares, and a check may not be written to close an
account. Canceled checks are sent to the shareholder each month.

DEBIT CARD

Upon request, a debit account will be established. This account allows
shareholders to redeem Shares by using a debit card. A fee will be charged to
the account for this service.

SYSTEMATIC WITHDRAWAL PROGRAM

If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institution or the Trust.

CONTINGENT DEFERRED SALES CHARGE

A contingent deferred sales charge of up to .50 of 1% may be imposed upon
redemption of Class A Shares that were purchased through an exchange from
another Liberty Family Fund. This only applies to exchanges of shares of a
Liberty Family Fund that were originally purchased at net asset value (and upon
which .50 of 1% was paid to the dealer), with proceeds of an unaffiliated
investment company, based upon the terms and conditions outlined in the
"Purchases With Proceeds From Redemptions of Unaffiliated Investment Companies"
and "Contingent Deferred Sales Charge" sections of the applicable fund
prospectuses.

Additionally, a contingent deferred sales charge of up to 5.50% may be imposed
upon redemption of Class B Shares within six full years of purchase.

Any applicable contingent deferred sales charge will be imposed on the lesser of
the net asset value of the redeemed Class B Shares at the time of purchase or
the net asset value of the redeemed Class B Shares at the time of redemption in

accordance with the following schedule:

<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
<S> <C>
First 5.50%
Second 4.75%
Third 4%
Fourth 3%
Fifth 2%
Sixth 1%
Seventh and thereafter 0%
</TABLE>

The contingent deferred sales charge on Class B Shares will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be retained by
the distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase. Redemptions will be processed in a manner
intended to maximize the amount of redemption which will not be subject to a
contingent deferred sales charge. In computing the amount of the applicable
contingent deferred sales charge, redemptions are deemed to have occurred in the
following order:

(1) Shares acquired through the reinvestment of dividends and long-term capital
gains; (2) Shares held for more than six full years from the date of purchase;
(3) Shares held for fewer than six years on a first-in, first-out basis. A
contingent deferred sales charge is not assessed in connection with an exchange
of Trust Shares for shares of other Class B Shares of funds in the Liberty
Family of Funds (see "Exchange Privilege"). Any contingent deferred sales charge
imposed at the time the exchanged-for shares are redeemed is calculated as if
the shareholder had held the shares from the date on which he became a
shareholder of the exchanged-from shares. Moreover, the contingent deferred
sales charge will be eliminated with respect to certain redemptions (see
"Elimination of Contingent Deferred Sales Charge" below).

ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE

The contingent deferred sales charge will be eliminated with respect to the
following redemptions: (1) redemptions following the death or disability, as
defined in Section 72(m)(7) of the Internal Revenue Code of 1986, of a
shareholder; (2) redemptions representing minimum required distributions from an
Individual Retirement Account or other retirement plan to a shareholder who has
attained the age of 70-1/2; and (3) involuntary redemptions by the Trust of
Shares in shareholder accounts that do not comply with the minimum balance
requirements. In addition, to the extent that the distributor does not make
advance payments to certain financial institutions for purchases made by their
clients, no contingent deferred sales charge will be imposed on redemptions of
Shares held by Trustees, employees and sales representatives of the Trust, the
distributor, or affiliates of the Trust or distributor; employees of any
financial institution that sells shares of the Trust pursuant to a sales
agreement with the distributor; and spouses and children under the age of 21 of
the aforementioned persons. Finally, no contingent deferred sales charge will be
imposed on the redemption of Shares originally purchased through a bank trust
department, an investment adviser registered under the Investment Advisers Act
of 1940, as amended, or retirement plans where the third party administrator has
entered into certain arrangements with Federated Securities Corp. or its
affiliates, or any other financial institution, to the extent that no payments
were advanced for purchases made through or by such entities. The Trustees
reserve the right to discontinue elimination of the contingent deferred sales
charge. Shareholders will be notified of such elimination. Any Shares purchased
prior to the termination of such waiver would have the contingent deferred sales
charge eliminated as provided in the Trust's prospectus at the time of the
purchase of

the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.

- -------------------------------------------------------
ACCOUNT AND SHARE
INFORMATION

DIVIDENDS

Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Trust unless cash
payments are requested by writing to the Trust.

CAPITAL GAINS

The Trust does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Trust will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.

CERTIFICATES AND CONFIRMATIONS

As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust or Federated Services Company in writing. Monthly
confirmations are sent to report transactions such as all purchases and
redemptions as well as dividends paid during the month.

ACCOUNTS WITH LOW BALANCES

Due to the high cost of maintaining accounts with low balances, if an account
balance falls below $500 due to shareholder redemptions, the Trust may redeem
all of the remaining shares in that account (except accounts maintained by
retirement plans) and pay the proceeds to the shareholder. Before shares are
redeemed to close an account, the shareholder will be notified in writing and
allowed 30 days to purchase additional shares to meet the minimum requirement.

VOTING RIGHTS

Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes in
the Trust have equal voting rights, except that in matters affecting only a
particular class, only shares of that class are entitled to vote. As a
Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under certain
circumstances.

Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares.

MASSACHUSETTS PARTNERSHIP LAW

Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.

In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.

- --------------------------------------------------------------------------------
TRUST INFORMATION

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.

INVESTMENT ADVISER

Investment decisions for the Trust are made by Federated Advisers, the Trust's
investment adviser, subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for the Trust and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Trust.

ADVISORY FEES

The annual investment advisory fee is based on the Trust's average daily net
assets as shown in the chart below:

<TABLE>
<CAPTION>
ADVISORY FEE AS
% OF AVERAGE
AVERAGE DAILY NET ASSETS DAILY NET ASSETS
<S> <C>
First $500 million .50 of 1%
Second $500 million .475 of 1%
Third $500 million .45 of 1%
Fourth $500 million .425 of 1%
Over $2 billion .40 of 1%
</TABLE>

The Adviser has undertaken to reimburse the Trust for operating expenses in
excess of limitations established by certain states.

ADVISER'S BACKGROUND

Federated Advisers, a Delaware business trust organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) Shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.

Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $72 billion invested across more than 260 funds
under management and/or administration by its subsidiaries, as of December 31,
1994, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,750 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.

DISTRIBUTION OF SHARES

Federated Securities Corp. is the principal distributor for Shares of the Trust.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.

The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares directly purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will not
be made from the assets of the Trust. Dealers may voluntarily waive receipt of
all or any portion of these payments. The distributor may pay a portion of the
distribution fee discussed below to financial institutions that waive all or any
portion of the advance payments.

DISTRIBUTION PLAN
(CLASS B SHARES ONLY)
AND SHAREHOLDER SERVICES PLANS

Under a distribution plan adopted in accordance with Investment Company Act Rule
12b-1 (the "Distribution Plan"), Class B Shares will pay a fee to the
distributor in an amount computed at an annual rate of .75% of the average daily
net assets of Class B Shares to finance any activity which is principally
intended to result in the sale of Shares subject to the Distribution Plan.
Because distribution fees to be paid by the Trust to the distributor may not
exceed an annual rate of .75% of Class B Shares' average daily net assets, it
will take the distributor a number of years to recoup the expenses it has
incurred for its distribution and distribution-related services pursuant to the
Plan.

The Distribution Plan is a compensation type plan. As such, the Trust makes no
payments to the distributor except as described above. Therefore, the Trust does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Trust, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by Shares
under the Plan.

In addition, the Trust has adopted a Shareholder Services Plan (the "Services
Plan") under which

it may make payments up to 0.25 of 1% of the average daily net asset value of
Class A Shares and Class B Shares to obtain certain personal services for
shareholders and for the maintenance of shareholder accounts ("Shareholder
Services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon Shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.

The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.

State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.

OTHER PAYMENTS TO
FINANCIAL INSTITUTIONS

In addition to periodic payments to financial institutions under the Shareholder
Services Plan, certain financial institutions may be compensated by the Adviser
or its affiliates for the continuing investment of customers' assets in certain
funds, including the Trust, advised by those entities. These payments will be
made directly by the distributor or Adviser from their assets, and will not be
made from the assets of the Trust or by the assessment of a sales load on
shares.

Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Trust. Such assistance will be predicated upon the amount of
Shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Trust's investment
adviser or its affiliates.

ADMINISTRATION OF THE TRUST

ADMINISTRATIVE SERVICES

Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Trust. Federated Administrative
Services provides these at an annual rate which relates to the average aggregate
daily net assets of all Federated Trusts as specified below:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE OF THE FEDERATED TRUSTS
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of
$750 million
</TABLE>

The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.

Federated Administrative Services may choose voluntarily to waive a portion of
its fee.

CUSTODIAN

State Street Bank and Trust Company, P.O. Box 8600, Boston, Massachusetts
02266-8600, is custodian for the securities and cash of the Trust.

TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT

Federated Services Company, P.O. Box 8600, Boston, Massachusetts 02266-8600, is
transfer agent for the Shares of the Trust, and dividend disbursing agent for
the Trust.

INDEPENDENT AUDITORS

The independent auditors for the Trust are Arthur Andersen LLP, 2100 One PPG
Place, Pittsburgh, PA 15222.

EXPENSES OF THE TRUST AND
CLASS B SHARES

Holders of Class B Shares pay their allocable portion of Trust and portfolio
expenses.

The Trust expenses for which holders of Class B Shares pay their allocable
portion include, but are not limited to: the cost of organizing the Trust and
continuing its existence; registering the Trust with federal and state
securities authorities; Trustees' fees; auditors' fees; the cost of meetings of
Trustees; legal fees of the Trust; association membership dues; and such
non-recurring and extraordinary items as may arise from time to time.

The portfolio expenses for which holders of Class B Shares pay their allocable
portion include, but are not limited to: registering the portfolio and Class B
Shares of the portfolio; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; auditors' fees; and such non-recurring and
extraordinary items as may arise from time to time.

At present, the only expenses which are allocated specifically to Class B Shares
as a class are expenses under the Trust's Shareholder Services Plan and
Distribution Plan. However, the Trustees reserve the right to allocate certain
other expenses to holders of Class B Shares as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: distribution fees;
transfer agent fees as identified by the transfer agent as attributable to
holders of Class B Shares; fees under the Trust's Shareholder Services Plan;
printing and postage expenses related to preparing and distributing materials
such as shareholder reports, prospectuses and proxies to current shareholders;
registration fees paid to the Securities and Exchange Commission and to state
securities commissions; expenses related to administrative personnel and
services as required to support holders of Class B Shares; legal fees relating
solely to Class B Shares; and Trustees' fees incurred as a result of issues
relating solely to Class B Shares.

- --------------------------------------------------------------------------------
TAX INFORMATION

FEDERAL INCOME TAX

The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.

Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional Shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held the Shares. No federal income tax is due on any
dividends earned in an IRA or qualified retirement plan until distributed.

PENNSYLVANIA CORPORATE AND
PERSONAL PROPERTY TAXES

In the opinion of Houston, Houston & Donnelly, counsel to the Trust:

the Trust is not subject to the Pennsylvania corporate or personal property
taxes; and

Trust shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.

Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.

- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION

From time to time the Trust advertises its yield and effective yield for each
class of Shares.

The yield of Class A Shares and Class B Shares represents the annualized rate of
income earned on an investment in Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment, shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield, but, when annualized, the income earned by an investment in Shares is
assumed to be reinvested daily. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.

Yield and effective yield will be calculated separately for Class A Shares and
Class B Shares. Because Class B Shares are subject to Rule 12b-1 fees, the yield
and effective yield for Class A Shares, for the same period, will exceed that of
Class B Shares.

From time to time, the Trust may advertise its performance for Class A Shares
and Class B Shares using certain financial publications and/ or compare the
performance of Class A Shares and Class B Shares to certain indices.

LIBERTY U.S. GOVERNMENT
MONEY MARKET TRUST
CLASS A SHARES
CLASS B SHARES
COMBINED PROSPECTUS

An Open-End, Diversified
Management Investment Company

May 31, 1995

[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS

FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779

531485100
531485209
G00701-03 (5/95)

LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
CLASS A SHARES
CLASS B SHARES
Combined Statement of Additional Information

This Combined Statement of Additional Information should be read
with the combined prospectus of Class A Shares and Class B Shares
of Liberty U.S. Government Money Market Trust (the "Trust") dated
May 31, 1995. This Statement is not a prospectus itself. To
receive a copy of the prospectus for any class, write or call the
Trust.
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1995

Federated Securities Corp.
Distributor
A subsidiary of
Federated Investors
GENERAL INFORMATION ABOUT THE
TRUST 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 1
Investment Limitations 1
LIBERTY U.S. GOVERNMENT MONEY
MARKET
TRUST MANAGEMENT 2
Trust Ownership 6
Trustees Compensation 6
INVESTMENT ADVISORY SERVICES 7
Adviser to the Trust 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 8
BROKERAGE TRANSACTIONS 8
PURCHASING SHARES 8
Distribution of Shares 8
Distribution Plan (Class B
Shares Only) and
Shareholder Services Plan 8
Conversion to Federal Funds 9
Use of the Amortized Cost
Method 9
REDEEMING SHARES 10
Redemption in Kind 10
TAX STATUS 10
The Trust's Tax Status 10
Shareholders' Tax Status 10
YIELD 10
EFFECTIVE YIELD 11
PERFORMANCE COMPARISONS 11
ABOUT FEDERATED INVESTORS 12
FINANCIAL STATEMENTS 13
GENERAL INFORMATION ABOUT THE TRUST
Liberty U.S. Government Money Market Trust (the "Trust") was established
as a Massachusetts business trust under a Declaration of Trust dated
August 30, 1979.
The name of the Trust was AARP U.S. Government Money Market Trust prior
to April 16, 1985.
On December 13, 1994, the shareholders of the Trust voted to permit the
Trust to offer separate series and classes of shares. Shares of the
Trust are offered in two classes, known as Class A Shares and Class B
Shares (individually and collectively referred to as "Shares" as the
context may require.) This Combined Statement of Additional Information
relates to both classes of Shares.
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is stability of principal and current
income consistent with stability of principal.
TYPES OF INVESTMENTS
The Trust invests in short-term U.S. government securities. The
investment policies and the objective stated above cannot be changed
without approval of shareholders.
Variable Rate U.S. Government Securities
Some of the short-term U.S. government securities the Trust may
purchase carry variable interest rates. These securities have a
rate of interest subject to adjustment at least annually. This
adjusted interest rate is ordinarily tied to some objective
standard, such as the 91-day U.S. Treasury bill rate.
Variable interest rates will reduce the changes in the market
value of such securities from their original purchase prices.
Accordingly, the potential for capital appreciation or capital
depreciation should not be greater than the potential for capital
appreciation or capital depreciation of fixed interest rate U.S.
government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S. government securities.
The Trust may purchase variable rate U.S. government securities
upon the determination by the Board of Trustees that the interest
rate as adjusted will cause the instrument to have a current
market value that approximates its par value on the adjustment
date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Trust sufficient to make payment for the securities to be
purchased are segregated on the Trust's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled.
With respect to the Trust's investments in when-issued and delayed
delivery transactions, the Trust's investment adviser has adopted an
operating policy, which can be changed by the Trustees, that such
investments will be limited to 20% of the Trust's total assets.
REPURCHASE AGREEMENTS
The Trust or its custodian will take possession of the securities
subject to repurchase agreements, and these securities will be marked to
market daily. To the extent that the original seller does not repurchase
the securities from the Trust, the Trust could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Trust might be delayed pending
court action. The Trust believes that under the regular procedures
normally in effect for custody of the Trust's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Trust and allow retention or disposition of
such securities. The Trust will only enter into repurchase agreements
with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by the Trust's adviser to be
creditworthy pursuant to guidelines established by the Trustees.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described
below without approval of shareholders.
Selling Short and Buying on Margin
The Trust will not sell any portfolio instruments short or
purchase any portfolio instruments on margin but may obtain such
short-term credits as may be necessary for clearance of purchases
and sales of portfolio instruments.
Borrowing Money
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not
in excess of 5% of the value of its total assets or in an amount
up to one-third of the value of its total assets, including the
amount borrowed, in order to meet redemption requests without
immediately selling portfolio instruments. This provision is not
for investment leverage but solely to facilitate management of the
portfolio by enabling the Trust to meet redemption requests when
the liquidation of portfolio instruments would be inconvenient or
disadvantageous.
Interest paid on borrowed funds will not be available for
investment. The Trust will liquidate any such borrowings as soon
as possible and may not purchase any portfolio instruments while
any borrowings are outstanding.
Pledging Assets
The Trust will not mortgage, pledge, or hypothecate its assets
except to secure permitted borrowings. In those cases, it may
mortgage, pledge, or hypothecate assets having a market value not
exceeding the lesser of the dollar amounts borrowed or 10% of the
value of total assets at the time of the borrowing.
Lending Cash or Securities
The Trust will not lend any of its assets, except that it may
purchase or hold U.S. government obligations, including repurchase
agreements, permitted by its investment objective and policies.
Issuing Senior Securities
The Trust will not issue senior securities, except as permitted by
its investment objective and policies.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Trust did not borrow money or pledge assets in excess of 5% of the
value of its net assets during the last fiscal year and has no present
intent to do so in the coming fiscal year.
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST MANAGEMENT
Officers and Trustees. Officers and Trustees are listed with their
addresses, present positions with Liberty U.S. Government Money Market
Trust and principal occupations, including those with Federated
Advisers, its affiliates, and the "Funds."

John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, President and Director of the Company.

Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.

John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.

William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.

J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President and Trustee
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Director
of the Company.

James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.

Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.

Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
E
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.

Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.

Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.

John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.

Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.

Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.

Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.

Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.

John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.

* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
Officers and Trustees own less than 1% of the Trust's outstanding
Shares.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund,
Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark
Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; The Virtus Funds; World Investment Series,
Inc.
TRUST OWNERSHIP
As of May 16, 1995, there were no shareholders of record who owned 5% or
more of the outstanding Class A Shares of the Trust.
As of May 16, 1995, the following shareholders were the beneficial
owners of more than 5% of the outstanding Class B Shares of the Trust:
Marilyn V. Burton Trust owned approximately 79,507 (9.25%) Shares;
Lincoln Trust Company owned approximately 72,013 (8.38%) Shares;
Painewebber for the Benefit of Janet K. Mitchell and Alice M. Long,
Trustees owned approximately 56,120 (6.63%) Shares; and Dain Bosworth
Inc. owned approximately 53,878 (6.27%) Shares.
Trustees Compensation

AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +

John F. Donahue $0 $0 for the Trust and
68 other investment companies in the Fund
Complex
Thomas G. Bigley $878 $20,688 for the Trust and
49 other investment companies in the Fund
Complex
John T. Conroy $1,953 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
William J. Copeland $1,953 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
James E. Dowd $1,953 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D. $1,771 $106,460 for the Trust and
64 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr. $1,953 $117,202 for the Trust and
64 other investment companies in the Fund
Complex
Peter E. Madden $1505 $90,563 for the Trust and
64 other investment companies in the Fund
Complex
Gregor F. Meyer $1.771 $106,460 for the Trust and
64 other investment companies in the Fund
Complex
John E. Murray, Jr. $0 $0 for the Trust and
64 other investment companies in the Fund
Complex
Wesley W. Posvar $1,771 $106,460 for the Trust and
64 other investment companies in the Fund
Complex
Marjorie P. Smuts $1,771 $106,460 for the Trust and
64 other investment companies in the Fund
Complex

*Information is furnished for the fiscal year ended March 31, 1995.
#The aggregate compensation is provided for the Trust which is comprised
of 1 portfolio.
+The information is provided for the last calendar year.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Advisers (the "Adviser"). It
is a subsidiary of Federated Investors. All of the class A voting
securities of Federated Investors are owned by a trust, the trustees of
which are John F. Donahue, his wife, and his son, J. Christopher
Donahue.
The Adviser shall not be liable to the Trust or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. During the fiscal years
ended March 31, 1995, 1994, and 1993, the Adviser earned $3,708,178 ,
$4,147,512, and $5,080,154, respectively.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Trust's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the Adviser will reimburse the Trust for its
expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
Adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Trust's Administrator. For the fiscal years ended March
31, 1995 and 1994, the Federated Administrative Services earned
$571,385, and $985,326, respectively. For the fiscal year ended March
31, 1993, Federated Administrative Services, Inc. earned $1,103,131.
Dr. Henry J. Gailliot, an officer of Federated Advisers, the adviser to
the Trust, holds approximately 20% of the outstanding common stock and
serves as director of Commercial Data Services, Inc., a company which
provides computer processing services to Federated Administrative
Services, Inc., and Federated Administrative Services.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and
research services. These services may be furnished directly to the Trust
or to the Adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant
services for which the Adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
PURCHASING SHARES
Shares are sold at their net asset value without a sales load on days
the New York Stock Exchange is open for business. The procedure for
purchasing Class A Shares and Class B Shares is explained in the
respective prospectuses under "How To Purchase Shares."
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of
the Trust.
DISTRIBUTION PLAN (CLASS B SHARES ONLY) AND SHAREHOLDER SERVICES PLAN
These arrangements permit the payment of fees to financial institutions,
the distributor, and Federated Shareholder Services, to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office
space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses.
With respect to the Class B Shares of the Trust, by adopting the
Distribution Plan, the Board of Trustees expects that the Trust will be
able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Trust in pursuing its investment objectives.
By identifying potential investors whose needs are served by the Trust
objectives, and properly servicing these accounts, it may be possible to
curb sharp fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts.
For the fiscal period ended March 31, 1995, no payment was made
pursuant to the Distribution Plan. In addition, for the fiscal year
ended March 31, 1995, payment in the amount of $403,573 was made
pursuant to the Shareholder Services Plan, all of which was paid to
financial institutions.
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders purchasing Shares must be in federal funds or be converted
into federal funds before shareholders begin to earn dividends.
Federated Services Company acts as the shareholder's agent in depositing
checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
The Trust attempts to stabilize the value of a Share at $1.00. The days
on which net asset value is calculated by the Trust are described in the
prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at
current market value.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with applicable conditions of Rule
2a-7 (the "Rule") promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. Under the Rule, the Trustees
must establish procedures reasonably designed to stabilize the net asset
value per Share, as computed for purposes of distribution and
redemption, at $1.00 per Share, taking into account current market
conditions and the Trust's investment objective.
Under the Rule, the Trust is permitted to purchase instruments which are
subject to demand features or standby commitments. As defined by the
Rule, a demand feature entitles the Trust to receive the principal
amount of the instrument from the issuer or a third party on (1) no more
than 30 days' notice or (2) at specified intervals not exceeding 397
days on no more than 30 days' notice. A standby commitment entitles the
Trust to achieve same day settlement and to receive an exercise price
equal to the amortized cost of the underlying instrument plus accrued
interest at the time of exercise.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship
between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there
is a difference of more than .5% between the two values. The
Trustees will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity)
to minimize any material dilution or other unfair results arising
from differences between the two methods of determining net asset
value.
Investment Restrictions
The Rule requires that the Trust limit its investments to
instruments that, in the opinion of the Trustees, present minimal
credit risk and that, if rated, meet the minimum rating standards
set forth in the Rule. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The
Rule also requires the Trust to maintain a dollar-weighted average
portfolio maturity (not more than 90 days) appropriate to the
objective of maintaining a stable net asset value of $1.00 per
Share. In addition, no instrument with a remaining maturity of
more than 397 days can be purchased by the Trust. Should the
disposition of a portfolio security result in a dollar-weighted
average portfolio maturity of more than 90 days, the Trust will
invest its available cash to reduce the average maturity to 90
days or less as soon as possible. Shares of investment companies
purchased by the Trust will meet these same criteria and will have
investment policies consistent with Rule 2a-7.
It is the Trust's usual practice to hold portfolio securities to
maturity and realize par, unless the Adviser determines that sale or
other disposition is appropriate in light of the Trust's investment
objective. Under the amortized cost method of valuation, neither the
amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on
Shares of the Trust computed by dividing the annualized daily income on
the Trust's portfolio by the net asset value computed as above may tend
to be higher than a similar computation made by using a method of
valuation based upon market prices and estimates.
In periods of rising interest rates, the indicated daily yield on Shares
of the Trust computed the same way may tend to be lower than a similar
computation made by using a method of calculation based upon market
prices and estimates.
REDEEMING SHARES
The Trust redeems Shares at the next computed net asset value after the
Trust receives the redemption request. Redemption procedures are
explained in the prospectus under "How To Redeem Shares." Although the
transfer agent does not charge for telephone redemptions, it reserves
the right to charge a fee for the cost of wire-transferred redemptions
of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the
right under certain circumstances to pay the redemption price in whole
or in part by a distribution of securities from the Trust's portfolio
for Class A Shares or Class B Shares.
Redemption in kind will be made in conformity with applicable Securities
and Exchange Commission rules, taking such securities at the same value
employed in determining net asset value and selecting the securities in
a manner the Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption
is made in kind, shareholders receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
The Trust has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Trust is obligated to redeem Shares
for any one shareholder in cash only up to the lesser of $250,000 or 1%
of the Trust's net asset value during any 90-day period.
TAX STATUS
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Trust
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as
cash or additional Shares. No portion of any income dividend paid by the
Trust is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are
taxable as ordinary income.
Capital Gains
Because the Trust invests primarily for income and because it
normally holds portfolio securities to maturity, it is not
expected to realize long-term capital gains.
YIELD
The Trust's yield for Class A Shares for the seven-day period ended
March 31, 1995 was 5.09%.
The Trust's yield for Class B Shares for the seven-day period ended
March 31, 1995 was 4.28%.
The Trust calculates its yield daily, based upon the seven days ending
on the day of the calculation, called the "base period." This yield is
computed by:
o determining the net change in the value of a hypothetical account
with a balance of one Share at the beginning of the base period,
with the net change excluding capital changes but including the
value of any additional Shares purchased with dividends earned
from the original one Share and all dividends declared on the
original and any purchased Shares;
o dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
o multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in the Trust, the performance will be reduced for those shareholders
paying those fees.
EFFECTIVE YIELD
The Trust's effective yield for Class A Shares for the seven-day period
ended March 31, 1995 was 5.22%.
The Trust's effective yield for Class B Shares for the seven-day period
ended March 31, 1995 was 4.37%.
The Trust's effective yield is computed by compounding the unannualized
base period return by:
o adding 1 to the base period return;
o raising the sum to the 365/7th power; and
o subtracting 1 from the result.
PERFORMANCE COMPARISONS
The Trust's performance of each class of Shares depends upon such
variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates on money market instruments;
o changes in the Trust's or either class of Shares' expenses; and
o the relative amount of Trust cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which
the Trust uses in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Trust
will quote its Lipper ranking in the "short-term U.S. government
funds" category in advertising and sales literature.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
Advertisements and other sales literature for either class of Shares may
refer to "total return." Total return is the historic change in the
value of an investment in either class of Shares of the Trust based on
the monthly reinvestment of dividends over a specified period of time.
From time to time as it deems appropriate, the Trust may advertise its
performance of either class of Shares using charts, graphs, and
descriptions, compared to federally insured bank products including
certificates of deposit and time deposits.
ABOUT FEDERATED INVESTORS
Federated is dedicated to meeting investor needs which is
reflected in its investment decision making structured,
straightforward, and consistent. This has resulted in a
history of competitive performance with a range of
competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is
firmly rooted in sound methodologies backed by fundamental
and technical research. Investment decisions are made and
executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the money market sector, Federated gained prominence in
the mutual fund industry in 1974 with the creation of the
first institutional money market fund. Simultaneously, the
company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a
principal means used by money managers today to value money
market fund shares. Other innovations include the first
institutional tax-free money market fund. As of December
31, 1994, Federated managed more than $31 billion in assets
across approximately 43 money market funds, including 17
government, 8 prime and 18 municipal with assets
approximating $17 billion, $7.4 billion and $6.6 billion,
respectively.
J. Thomas Madden, Executive Vice President, oversees
Federated's equity and high yield corporate bond management
while William D. Dawson, Executive Vice President, oversees
Federated's domestic fixed income management. Henry A.
Frantzen, Executive Vice President, oversees the management
of Federated's international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing
their financial goals through mutual funds. These
investors, as well as businesses and institutions, have
entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes
mutual funds for a variety of investment applications.
Specific markets include:
INSTITUTIONAL
Federated meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate
accounts and mutual funds for a variety of applications,
including defined benefit and defined contribution
programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds,
tax-exempt entities, foundations/endowments, insurance
companies, and investment and financial advisors. The
marketing effort to these institutional clients is headed
by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships
with more than 1,500 banks and trust organizations.
Virtually all of the trust divisions of the top 100 bank
holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is
headed by Mark R. Gensheimer, Executive Vice President,
Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated mutual funds are available to consumers through
major brokerage firms nationwide--including 200 New York
Stock Exchange firms--supported by more wholesalers than
any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President,
Broker/Dealer Division.

*source: Investment Company Institute
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended March 31, 1995 are
incorporated herein by reference to the Annual Report of the Trust dated
March 31, 1995 (File Nos. 2-65447 and 811-2956). A copy of the this
report may be obtained without charge by contacting the Trust.
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