LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
CLASS B SHARES
PROSPECTUS
The Class B Shares of Liberty U.S. Government Money Market Trust (the "Trust")
represent interests in an open-end, diversified management investment company (a
mutual fund) investing in short-term U.S. government securities to achieve
stability of principal and current income consistent with stability of
principal.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. 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.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Class B Shares of the Trust. Keep this prospectus for future
reference.
The Trust has also filed a Combined Statement of Additional Information for
Class A Shares and Class B Shares dated December 19, 1994, 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 December 19, 1994
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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GENERAL INFORMATION 2
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LIBERTY FAMILY OF FUNDS 2
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 4
Acceptable Investments 4
Instruments of Banks and Savings
and Loan Associations 4
Repurchase Agreements 4
When-Issued and Delayed Delivery
Transactions 4
Investment Limitations 5
Regulatory Compliance 5
NET ASSET VALUE 5
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Conversion of Class B Shares 5
INVESTING IN CLASS B SHARES 6
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Share Purchases 6
Through a Financial Institution 6
Certificates and Confirmations 6
Dividends 6
Capital Gains 6
Retirement Plans 7
EXCHANGE PRIVILEGE 7
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Requirements for Exchange 7
Tax Consequences 7
Making an Exchange 7
Telephone Instructions 8
REDEEMING CLASS B SHARES 8
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Through a Financial Institution 8
Directly From the Trust 9
By Telephone 9
By Mail 9
Signatures 9
Contingent Deferred Sales Charge 10
Elimination of Contingent Deferred
Sales Charge 10
Systematic Withdrawal Program 11
Accounts with Low Balances 11
TRUST INFORMATION 11
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Management of the Trust 11
Board of Trustees 11
Officers and Trustees 11
Trust Ownership 15
Trustee Liability 15
Investment Adviser 15
Advisory Fees 16
Adviser's Background 16
Distribution of Class B Shares 16
Distribution and Shareholder Services
Plans 16
Administration of the Trust 17
Administrative Services 17
Custodian 18
Transfer Agent and
Dividend Disbursing Agent 18
Legal Counsel 18
Independent Public Accountants 18
Expenses of the Trust and Class B
Shares 18
SHAREHOLDER INFORMATION 18
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Voting Rights 18
Massachusetts Partnership Law 19
TAX INFORMATION 19
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Federal Income Tax 19
Pennsylvania Corporate and Personal
Property Taxes 19
PERFORMANCE INFORMATION 20
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OTHER CLASSES OF SHARES 20
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FINANCIAL HIGHLIGHTS--CLASS A SHARES 21
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SUMMARY OF TRUST EXPENSES
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<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 projected average net assets)
Management Fee.............................................................................................. 0.49%
12b-1 Fee................................................................................................... 0.75%
Total Other Expenses........................................................................................ 0.65%
Shareholder Services Fee (after waiver) (2).................................................. 0.11%
Total Class B Shares Operating Expenses (3)(4)...................................................... 1.89%
</TABLE>
(1) The contingent deferred sales charge schedule applicable to a shareholder's
redemption of Class B Shares of the Trust is the schedule applicable to
redemption of Class B Shares of the Liberty Family fund originally purchased
by the shareholder. The contingent deferred sales charge reflected in this
table 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."
(2) The maximum shareholder services fee is 0.25%.
(3) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
(4) The Total Class B Shares Operating Expenses are estimated to be 2.03% absent
the anticipated voluntary waiver of a portion of the shareholer services
fee.
* Total Class B Shares Operating Expenses are estimated based on average
expenses expected to be incurred during the period ending March 31, 1995.
During the course of this period, expenses may be more or less than the
average amount shown.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Class B Shares of the Trust
will bear, either directly or indirectly. For more complete descriptions of the
various costs and expenses, see "Trust Information" and "Investing in Class B
Shares." 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
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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............................. $76 $103
You would pay the following expenses on the same investment,
assuming no redemption........................................................................ $19 $59
</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. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE TRUST'S FISCAL YEAR ENDING MARCH 31,
1995.
The information set forth in the foregoing table and example relates only to
Class B Shares of the Trust. The Trust also offers another class of shares
called Class A Shares. Class A Shares and Class B Shares are subject to certain
of the same expenses; however, Class A Shares are not subject to a contingent
deferred sales charge or a 12b-1 fee. See "Other Classes of Shares."
GENERAL INFORMATION
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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 Liberty Center, 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. This prospectus relates only to Class B Shares
("Shares") of the Trust.
Class B 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. Class B Shares are available only by exchange from Class
B Shares of other Liberty Family funds.
The Trust attempts to stabilize the value of a Share at $1.00. Except as
otherwise noted in this prospectus, Class B Shares are sold at net asset value
and are redeemed at net asset value. However, a contingent deferred sales charge
is imposed on certain shares which are redeemed within six full years of
original purchase of Liberty Family Class B Shares. For a more complete
description, see "Redeeming Class B Shares."
In addition, the Trust pays a distribution fee to the distributor at an annual
rate not to exceed 0.75% of the 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. For a more complete description, see "Distribution and Shareholder
Services Plans."
LIBERTY FAMILY OF FUNDS
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This Trust is a member of a family of mutual funds, collectively known as the
Liberty Family of Funds. The other funds in the Family 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 communication 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 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 a proven, professional investment adviser.
INVESTMENT INFORMATION
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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;
notes, bonds, and discount notes 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; Federal Home Loan
Mortgage Corporation; Federal National Mortgage Association; Government
National Mortgage Association; and Student Loan Marketing 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 LOAN 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. These
instruments may be less marketable than other instruments purchased by the
Trust.
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
short-term U.S. government obligations on a when-issued or delayed delivery
basis. In when-issued and delayed
delivery transactions, the Trust relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the
Trust to miss a price or yield considered to be advantageous.
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 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
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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 the fifteenth day of the month, eight years after the purchase
date, except as noted below, and will no longer be subject to a distribution
services fee (see "Other Classes 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 availability of the conversion feature is subject to the granting of
an exemptive order by the Securities and Exchange Commission or the adoption of
a rule permitting such conversion. In the event
that the exemptive order or rule ultimately issued by the Securities and
Exchange Commission requires any conditions additional to those described in
this prospectus, shareholders will be notified. 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.
INVESTING IN CLASS B SHARES
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Class B
Shares may only be purchased by exchange of Class B Shares of another Liberty
Family fund. Class B Shares are exchanged at net asset value. The Trust reserves
the right to reject any exchange request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to request an exchange. Requests for
exchange through a financial institution are considered received when the Trust
is notified of the request, It is the financial institution's responsibility to
promptly submit exchange requests.
Requests for exchange made through a registered broker/dealer must be received
by the broker by
4:00 p.m. (Eastern time) and must be transmitted by the broker to the Trust
before 5:00 p.m. (Eastern time in order for Shares to be acquired by exchange at
that day's price. See "Exchange Privilege."
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
in writing to Federated Services Company.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
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 contacting Federated Services Company. Shares
purchased through an exchange will begin to earn dividends on the next business
day.
CAPITAL GAINS
Since the Trust's policy is, under normal circumstances, to hold portfolio
securities to maturity and to value portfolio securities at amortized cost, it
does not expect any capital gains or losses. If the Trust does experience gains,
however, it could result in an increase in dividends. Capital losses could
result in
a decrease in dividends. If for some extraordinary reason the Trust realizes net
long-term capital gains, it will distribute them at least once every 12 months.
RETIREMENT PLANS
Shares of the Trust can be purchased through an exchange as an investment for
retirement plans or for IRA accounts. For further details, contact the Trust and
consult a tax adviser.
EXCHANGE PRIVILEGE
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In order to provide greater flexibility to Trust shareholders whose investment
objectives have changed, 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 for Class B Shares in other funds in the
Liberty Family of Funds, the time for which the exchanged-for Shares were held
will be added, or tacked, to the time for which the 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
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 Class B Shares of the other fund. The exchange
privilege may be modified or terminated at any time. Shareholders will be
notified of the modification or termination of the exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of 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 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, c/o State Street Bank and Trust Company, Two
Heritage Drive, North Quincy, Massachusetts 02171.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the 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 8604, Boston, Massachusetts
02266-8604, 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 not receive any dividend that is
payable to shareholders of record on that date. This privilege may be modified
or terminated at any time.
REDEEMING CLASS B SHARES
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The Trust redeems Shares 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. Redemptions can be made through a
financial institution or directly from the Trust. Redemption requests must be
received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares of the Trust by calling his financial
institution (such as a bank or an investment dealer) to request the redemption.
Shares will be redeemed at the net asset value, less any applicable contingent
deferred sales charge, next determined after the Trust receives the redemption
request from the financial institution. The financial institution is responsible
for promptly submitting redemption requests and providing proper written
redemption instructions to the Trust. The financial institution may charge
customary fees and commissions for this service.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be considered.
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").
DIRECTLY FROM THE TRUST
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Trust. Telephone
redemption instructions may be recorded. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request. The minimum amount for a wire transfer is $1,000. If at any time
the Trust shall determine it necessary to terminate or modify these methods of
redemption, shareholders would be promptly notified.
Authorization forms permitting the Trust to accept telephone requests must first
be completed. Authorization forms and information on these services are
available from Federated Securities Corp. If reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
A daily dividend is paid on Shares redeemed if the redemption request is
received after 12:00 noon (Eastern time). However, the proceeds are not wired
until the following business day. Redemption requests received before 12:00 noon
(Eastern time) will be paid the same day but will not be entitled to that day's
dividend.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The
written request should include the shareholder's name, the Trust name and class
designation, the account number, and the Share or dollar amount requested, and
should be signed exactly as the shares are registered. If share certificates
have been issued, they must be properly endorsed and should be sent by
registered or certified mail with the written request. Shareholders should call
the Trust for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The 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.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge may be imposed upon redemption of Class B
Shares purchased through an exchange from another Liberty Family fund. Upon
redemption, the applicable contingent deferred sales charge will be calculated
based on the schedule applicable to redemptions of Class B Shares of the Liberty
Family fund originally purchased. For purposes of calculating the holding
period, the time for which Class B Shares of the Trust were held will be added,
or tacked, to the time for which exchanged-from Shares were held.
The contingent deferred sales charge 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 Fund 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.
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 Automated Clearing House (ACH) member. A
shareholder may apply for participation in this program through his financial
institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$500 due to shareholder redemptions. Before Shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional Shares to meet the minimum requirement.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the
"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.
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" described in the Statement of Additional Information.
- --------------------------------------------------------------------------------
John F. Donahue+*
Federated Investors Tower
Pittsburgh, PA
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 of the Trust.
- --------------------------------------------------------------------------------
Thomas G. Bigley
28th Floor
One Oxford Center
Pittsburgh, PA
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
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
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.
- --------------------------------------------------------------------------------
James E. Dowd
571 Hayward Mill Road
Concord, MA
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
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director, Trustee, or
Managing General Partner of the Funds.
- --------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+
Two Gateway Center--Suite 674
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Henny, Koehuba Meyer & Flaherty; Director, 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.
- --------------------------------------------------------------------------------
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer and Trustee
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.
- --------------------------------------------------------------------------------
Peter E. Madden
225 Franklin Street
Boston, MA
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
Two Gateway Center--Suite 674
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Henny, Koehuba Meyer & 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.
- --------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
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
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
- --------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
President
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 Trustee of the Trust.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
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.
- --------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
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.
+Members 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.
TRUST OWNERSHIP. Officers and Trustees own less than 1% of the Trust's
outstanding shares.
TRUSTEE LIABILITY. The Trust's Declaration of Trust provides that the Trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Advisers (the "Adviser"), 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. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF CLASS B 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.
DISTRIBUTION 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 to the distributor an amount computed at an annual rate
of 0.75% of the average daily net assets of Class B Shares to finance any
activity which is principally intended to result in the sale of Class B 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 0.75% of the 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 B Shares to obtain certain personal services for
shareholders and 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 law.
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 the Federated Funds as
specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
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 8604, Boston,
Massachusetts 02266-8604, is custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604 is transfer agent for the shares of
the Trust and dividend disbursing agent for the Trust.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, L.L.P., 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Trust are Arthur Andersen LLP, 2100 One PPG Place, Pittsburgh, Pennsylvania
15222.
EXPENSES OF THE TRUST AND CLASS B SHARES
Holders of Shares pay their allocable portion of Trust and portfolio expenses.
The Trust expenses for which holders of 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 Shares pay their allocable portion
include, but are not limited to: registering the portfolio and 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 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 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 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 Shares; legal fees relating solely to Shares; and Trustees' fees incurred as
a result of issues relating solely to Shares.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Trustee elections and other matters
submitted to shareholders for vote. All shares of each portfolio or class in the
Trust have equal voting rights, except that in matters affecting only a
particular portfolio or class, only shares of that portfolio or 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.
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 received. This applies whether dividends
and distributions are received in cash or as additional 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
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 Class
B Shares.
The yield of Class B Shares represents the annualized rate of income earned on
an investment in Class B 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 Class B 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.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Class B Shares after reinvesting all income distributions. It
is calculated by dividing that change by the initial investment and is expressed
as a percentage.
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, may exceed that of
Class B Shares. Depending on the dollar amount invested, and the time period for
which any particular class of shares is held, the total return for any
particular class may exceed that of another.
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.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust presently offers Class A Shares and Class B Shares.
Class A Shares are sold at net asset value to financial institutions which have
a sales agreement with the Trust, or directly by the distributor. Class A Shares
may be subject to a contingent deferred sales charge of up to .50 of 1% of Class
A Shares' net asset value, but are not distributed pursuant to a 12b-1 Plan, and
therefore are not subject to a distribution services fee. Class A Shares are
subject to a minimum initial investment of $500 unless the investment is in a
retirement plan, in which case the minimum initial investment is $50.
The amount of dividends payable to Class A Shares may generally exceed that of
Class B Shares by the difference between Class Expenses and distribution
services expenses borne by Class B Shares. The stated advisory fee is the same
for both classes of shares.
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
FINANCIAL HIGHLIGHTS
CLASS A SHARES
- --------------------------------------------------------------------------------
(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 13, 1994 on the Trust's
financial statements for the year ended March 31, 1994, and on the following
table for each of the ten years in the period ended March 31, 1994 is included
in the Annual Report dated March 31, 1994, which is incorporated by reference.
Class B Shares were not being offered as of March 31, 1994. The financial
highlights presented below are historical information for Class A Shares.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 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 0.02 0.03 0.05 0.07 0.08 0.07 0.06 0.05 0.07 0.09
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS
- --------------------
Dividends to
shareholders from
net investment
income (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.06) (0.05) (0.07) (0.09)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN* 2.34% 2.71% 4.66% 7.11% 8.24% 7.44% 6.07% 5.48% 7.16% 9.50%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 1.01% 1.04% 1.03% 1.01% 1.02% 1.01% 1.01% 1.01% 0.98% 0.88%
- --------------------
Net investment
income 2.31% 2.69% 4.59% 6.89% 7.94% 7.19% 5.90% 5.39% 6.95% 9.11%
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $805,907 $919,883 $1,173,685 $1,393,380 $1,443,347 $1,386,704 $1,358,694 $1,467,182 $2,069,333 $2,989,596
- --------------------
</TABLE>
* Based on net asset value which does not include the sales load or contingent
deferred sales charge, if applicable.
Further information about the Trust's performance is contained in the Trust's
annual report for the fiscal year ended March 31, 1994, which can be obtained
free of charge.
LIBERTY U.S. GOVERNMENT
MONEY MARKET TRUST
CLASS B SHARES
PROSPECTUS
An Open-End, Diversified
Management Investment Company
Prospectus dated December 19, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
531485100
8062809A-B (12/94)
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 respective prospectuses of Class A Shares and Class B Shares of
Liberty U.S. Government Money Market Trust (the "Trust") dated May 31,
1994 and December 19, 1994, respectively. 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 December 19, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
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
THE FUNDS 2
- ---------------------------------------------------------------
INVESTMENT ADVISORY SERVICES 3
- ---------------------------------------------------------------
Adviser to the Trust 3
Advisory Fees 3
ADMINISTRATIVE SERVICES 3
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 3
- ---------------------------------------------------------------
PURCHASING SHARES 4
- ---------------------------------------------------------------
Distribution of Shares 4
Distribution Plan (Class B Shares Only)
and Shareholder Services Plan 4
Conversion to Federal Funds 4
DETERMINING NET ASSET VALUE 5
- ---------------------------------------------------------------
Use of the Amortized Cost Method 5
REDEEMING SHARES 5
- ---------------------------------------------------------------
Redemption in Kind 6
TAX STATUS 6
- ---------------------------------------------------------------
The Trust's Tax Status 6
Shareholders' Tax Status 6
YIELD 6
- ---------------------------------------------------------------
EFFECTIVE YIELD 6
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 7
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 7
- ---------------------------------------------------------------
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 arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The Trust engages in
when-issued and delayed transactions only for the purpose of acquiring portfolio
securities consistent with the Trust's investment objective and policies, not
for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Trust. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or 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 at the trade date. These securities are marked to
market daily and maintained until the transaction is settled.
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.
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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.
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.
THE FUNDS
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"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; The Medalist Funds;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; 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
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Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; World Investment Series, Inc.
TRUST OWNERSHIP
As of December 19, 1994 there were no shareholders of record who owned 5% or
more of the outstanding Class A Shares of the Trust.
As of December 19, 1994, there were no shareholders of record who owned 5% or
more of the outstanding Class B Shares of the Trust.
INVESTMENT ADVISORY SERVICES
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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,
1994, 1993, and 1992, the Adviser earned $4,147,512, $5,080,154, and $6,176,806,
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
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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 purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc. may
hereinafter collectively be referred to as the "Administrators".) For the fiscal
year ended March 31, 1994 the Administrators collectively earned $985,326. For
the fiscal years ended March 31, 1993, and 1992, Federated Administrative
Services, Inc. earned $1,103,131, and $1,321,304, respectively, none of which
was waived.
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
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of
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the order can be obtained elsewhere. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the Board of
Trustees (the "Trustees").
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:
.advice as to the advisability of investing in securities;
.security analysis and reports;
.economic studies;
.industry studies;
.receipt of quotations for portfolio evaluations; and
.similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
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Except under certain circumstances described in the prospectus, Shares are sold
at their net asset value without a sales charge on days the New York Stock
Exchange is open for business. Class B Shares may only be purchased by exchange
of Class B Shares of another Liberty Family Fund. The procedure for purchasing
Class A Shares and Class B Shares is explained in the respective prospectuses
under "Investing in Class A Shares" or "Investing in Class B 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, 1994, payments in the amount of $44,736
were made pursuant to the Shareholder Services Plan, all of which was paid to
financial institutions.
CONVERSION TO FEDERAL FUNDS (CLASS A SHARES ONLY)
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
Class A 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
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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
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The Trust redeems Shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
respective prospectuses under "Redeeming Class A Shares" and "Redeeming Class B
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.
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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
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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:
.derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
.derive less than 30% of its gross income from the sale of securities held less
than three months;
.invest in securities within certain statutory limits; and
.distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends 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
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The Trust's yield for Class A Shares for the seven-day period ended March 31,
1994 was 2.56%.
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:
.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;
.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
.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
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The Trust's effective yield for Class A Shares for the seven-day period ended
March 31, 1994 was 2.59%.
The Trust's effective yield is computed by compounding the unannualized base
period return by:
.adding 1 to the base period return;
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.raising the sum to the 365/7th power; and
.subtracting 1 from the result.
PERFORMANCE COMPARISONS
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The Trust's performance of each class of Shares depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates on money market instruments;
.changes in the Trust's or either class of Shares' expenses; and
.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:
.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.
.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.
FINANCIAL STATEMENTS
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The financial statements for the fiscal year ended March 31, 1994 are
incorporated herein by reference from the Trust's Annual Report dated March 31,
1994 (File Nos. 2-65447 and 811-2956). A copy of the Annual Report may be
obtained without charge by contacting the Trust at the address listed in the
prospectus.
531485100
8062809B (12/94)
