LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
CLASS A SHARES
CLASS B SHARES
PROSPECTUS
The shares of Liberty U.S. Government Money Market Trust (the "Trust") offered
by this prospectus represent interests in an open-end, diversified management
investment company (a mutual fund). The Trust invests in short-term U.S.
government securities to achieve stability of principal and current income.
The Trust offers two classes of shares. Class A Shares are offered at net asset
value; Class B Shares are designed primarily for temporary investment as part of
a special investment program in Class B Shares, and unlike shares of most money
market funds, are offered at net asset value, plus an annual distribution fee,
an annual service fee, and a declining contingent deferred sales charge on
redemptions made within six years.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated May 31,
1996, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information or
a paper copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-245-4770. To obtain other
information, or make inquiries about the Trust, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1996
- ------------------------------------- -------------------------------------
TABLE OF CONTENTS
Summary of Trust Expenses--
Class A Shares...............................................................1
Summary of Trust Expenses--
Class B Shares...............................................................2
Financial Highlights--Class A Shares...........................................3
Financial Highlights--Class B Shares...........................................4
General Information............................................................5
Investment Information.........................................................5
Investment Objective.........................................................5
Investment Policies..........................................................5
Investment Limitations.......................................................6
Trust Information..............................................................7
Management of the Trust......................................................7
Distribution of Shares.......................................................8
Administration of the Trust..................................................9
Net Asset Value...............................................................10
How To Purchase Shares........................................................11
Special Purchase Features...................................................11
Conversion of Class B Shares................................................12
Exchange Privilege............................................................12
Class A Shares..............................................................12
Class B Shares..............................................................12
Requirements for Exchange...................................................12
Tax Consequences............................................................13
Making an Exchange..........................................................13
Telephone Instructions......................................................13
How To Redeem Shares..........................................................14
Special Redemption Features.................................................15
Contingent Deferred Sales Charge............................................15
Account and Share Information.................................................17
Tax Information...............................................................18
Federal Income Tax..........................................................18
State and Local Taxes.......................................................18
Performance Information.......................................................19
Addresses.....................................................................20
- ------------------------------------- -------------------------------------
SUMMARY OF TRUST EXPENSES
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
<TABLE>
<S> <C> <C>
CLASS A SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................... None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price)........................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1)..................................................... 0.00%
Redemption Fee (as a percentage of amount redeemed, if applicable).............................................. None
Exchange Fee.................................................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................................................................................. 0.49%
12b-1 Fee....................................................................................................... None
Total Other Expenses............................................................................................ 0.61%
Shareholder Services Fee (after waiver) (2)...................................................... 0.05%
Total Operating Expenses (3)........................................................................... 1.10%
</TABLE>
(1) Shareholders who purchased shares with the proceeds of a redemption of
shares of an unaffiliated investment company purchased and redeemed with a
sales charge and not distributed by Federated Securities Corp. may be
charged a contingent deferred sales charge of 0.50 of 1% for redemptions
made within one year of purchase. (See "Contingent Deferred Sales Charge.")
(2) The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 1.30% absent the voluntary
waiver of a portion of the shareholder services fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS A SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "HOW TO PURCHASE SHARES" AND "TRUST INFORMATION."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption
at the end of each time period.......................................... $16 $35 $61 $134
You would pay the following expenses on the same investment,
assuming no redemption.................................................. $11 $35 $61 $134
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------------- -------------------------------------
SUMMARY OF TRUST EXPENSES
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
<TABLE>
<S> <C> <C>
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)................................... None
Maximum Sales Charge 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 OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee.................................................................................................. 0.49%
12b-1 Fee....................................................................................................... 0.75%
Total Other Expenses............................................................................................ 0.67%
Shareholder Services Fee (after waiver) (2)...................................................... 0.11%
Total Operating Expenses (3)(4)........................................................................ 1.91%
</TABLE>
(1) The contingent deferred sales charge is 5.50% in the first year declining to
1.00% in the sixth year and 0.00% thereafter. (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 operating expenses would have been 2.05% absent the voluntary
waiver of a portion of the shareholder services fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF CLASS B SHARES WILL BEAR,
EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS
COSTS AND EXPENSES, SEE "HOW TO PURCHASE SHARES" AND "TRUST INFORMATION."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption
at the end of each time period.......................................... $76 $104 $126 $202
You would pay the following expenses on the same investment,
assuming no redemption.................................................. $19 $60 $103 $202
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------------------------------- -------------------------------------
FINANCIAL HIGHLIGHTS--CLASS A SHARES
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Trust's
independent public accountants. Their report, dated May 10, 1996, on the Trust's
financial statements for the year ended March 31, 1996, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Trust's financial statements and notes thereto, which may be obtained free of
charge from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <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
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.05 0.04 0.02 0.03 0.05 0.07 0.08 0.07 0.06
- -------------------------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.05) (0.04) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07) (0.06)
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (a) 4.89% 3.93% 2.34% 2.71% 4.66% 7.11% 8.24% 7.44% 6.07%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 1.10% 1.12% 1.01% 1.04% 1.03% 1.01% 1.02% 1.01% 1.01%
- -------------------------
Net investment income 4.78% 3.83% 2.31% 2.69% 4.59% 6.89% 7.94% 7.19% 5.90%
- -------------------------
Expense waiver/
reimbursement (b) 0.20% -- -- -- -- -- -- -- --
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted)
$697,472 $715,257 $805,907 $919,883 $1,173,685 $1,393,380 $1,443,347 $1,386,704 $1,358,694
- -------------------------
<CAPTION>
<S> <C>
1987
---------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00
- -------------------------
INCOME FROM INVESTMENT
OPERATIONS
- -------------------------
Net investment income 0.05
- -------------------------
LESS DISTRIBUTIONS
- -------------------------
Distributions from net
investment income (0.05)
- ------------------------- ---------
NET ASSET VALUE, END OF
PERIOD $ 1.00
- ------------------------- ---------
TOTAL RETURN (a) 5.48%
- -------------------------
RATIOS TO AVERAGE NET
ASSETS
- -------------------------
Expenses 1.01%
- -------------------------
Net investment income 5.39%
- -------------------------
Expense waiver/
reimbursement (b) --
- -------------------------
SUPPLEMENTAL DATA
- -------------------------
Net assets, end of
period (000 omitted) $1,467,182
- -------------------------
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
- ------------------------------------- -------------------------------------
FINANCIAL HIGHLIGHTS--CLASS B SHARES
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Trust's
independent public accountants. Their report, dated May 10, 1996, on the Trust's
financial statements for the year ended March 31, 1996, and on the following
table for the periods presented, is included in the Annual Report, which is
incorporated by reference. This table should be read in conjunction with the
Trust's financial statements and notes thereto, which may be obtained free of
charge from the Trust.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
--------------------
1996 1995(a)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income 0.04 0.01
- ----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
- ----------------------------------------------------------------------------------------------------
Distributions from net investment income (0.04) (0.01)
- ---------------------------------------------------------------------------------------------------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------- --------- ---------
TOTAL RETURN (b) 4.04% 1.14%
- ----------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------------------------------------------------
Expenses 1.91% 1.95%*
- ----------------------------------------------------------------------------------------------------
Net investment income 3.91% 4.15%*
- ----------------------------------------------------------------------------------------------------
Expense waiver/reimbursement (c) 0.14% --
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $9,459 $186
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from December 17, 1994 (date of initial
public offering) to March 31, 1995.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated August 30, 1979. 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 (the
"Trustees") has established two classes of shares, known as Class A Shares and
Class B Shares (individually and collectively, as the context requires,
"Shares").
Shares of the Trust are designed primarily for individuals and institutions as a
convenient means of accumulating an interest in a professionally managed,
diversified portfolio primarily limited to U.S. government obligations. The
Trust attempts to stabilize the value of a Share at $1.00. Shares are currently
sold and redeemed at that price. However, a contingent deferred sales charge is
imposed under certain circumstances. The minimum initial investment for Class A
Shares and Class B Shares is $500. However, the minimum initial investment for a
retirement account in any class is $50. Subsequent investments in any class must
be in amounts of at least $100, except for retirement plans which must be in
amounts of at least $50.
- --------------------------------------------------------------------------------
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Trust is stability of principal and current
income consistent with stability of principal. This investment objective cannot
be changed without shareholder approval. While there is no assurance that the
Trust will achieve its investment objective, it endeavors to do so by complying
with the various requirements of Rule 2a-7 under the Investment Company Act of
1940 which regulates money market mutual funds and by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing primarily in a portfolio
of U.S. government securities maturing in 13 months or less. The average
maturity of the securities in the Trust's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may not be changed by the Trustees without shareholder
approval.
ACCEPTABLE INVESTMENTS
The Trust invests primarily in U.S. government securities. These instruments 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; and Government National
Mortgage Association.; and
. short-term instruments of banks and savings and loan associations in where the
principal amount of the instrument 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.
REPURCHASE AGREEMENTS
Certain 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 securities to
the Trust and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the seller does not repurchase the
securities from the Trust, the Trust could receive less than the repurchase
price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay more
or less than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of those assets to secure such
borrowings.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Trust will not invest more than 10% of its net assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven days after notice.
- --------------------------------------------------------------------------------
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Trustees are responsible for
managing the Trust's business affairs and for exercising all the Trust's powers
except those reserved for the shareholders. An Executive Committee of the Board
of Trustees handles the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for the Trust are made by Federated Advisers, the Trust's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Trust and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee 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 up to the amount of the
advisory fee for operating expenses in excess of limitations established by
certain states. The adviser also may voluntarily choose to waive a portion of
its fee or reimburse other expenses of the Trust, but reserves the right to
terminate such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND
Federated Advisers, a Delaware business trust, organized on April 11, 1989, is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors. All of the Class A (voting) shares of
Federated Investors are owned by a trust, the trustees of which are John F.
Donahue, Chairman and Trustee of Federated Investors, Mr. Donahue's wife, and
Mr. Donahue's son, J. Christopher Donahue, who is President and Trustee of
Federated Investors.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private accounts.
Certain other subsidiaries also provide administrative services to a number of
investment companies. With over $80 billion invested across more than 250 funds
under management and/or administration by its subsidiaries, as of December 31,
1995, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 1,800 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,000 financial institutions nationwide. More
than 100,000 investment professionals have selected Federated funds for their
clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Trust; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
The distributor will pay dealers an amount equal to 5.5% of the net asset value
of Class B Shares directly purchased by their clients or customers. These
payments will be made directly by the distributor from its assets, and will not
be made from the assets of the Trust. Dealers may voluntarily waive receipt of
all or any portion of these payments. The distributor may pay a portion of the
distribution fee discussed below to financial institutions that waive all or any
portion of the advanced payments.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
DISTRIBUTION PLAN (CLASS B SHARES ONLY) AND SHAREHOLDER SERVICES
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 .75 of 1% of the average daily net asset
value of the Class B Shares to finance any activity which is principally
intended to result in the sale of Shares subject to the Distribution Plan.
Because distribution fees to be paid by the Trust to the distributor may not
exceed an annual rate of .75% of Class B Shares' average daily net assets, it
will take the distributor a number of years to recoup the expenses it has
incurred for its distribution and distribution-related services pursuant to the
Distribution Plan. The distributor may select financial institutions such as
banks, fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales services or distribution-related support
services as agents for their clients or customers. 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 the Trust under
the Distribution Plan.
In addition, the Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
the Trust may make payments up to 0.25 of 1% of the average daily net asset
value of the Shares to obtain personal services for shareholders and for the
maintenance of shareholder accounts. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services 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, the
distributor, of Federated Shareholder Services, as appropriate.
SUPPLEMENTAL PAYMENTS
TO FINANCIAL INSTITUTIONS
With respect to Class A Shares and Class B Shares, in addition to payments made
pursuant to the Distribution Plan and Shareholder Services Agreement, Federated
Securities Corp. and Federated Shareholder Services, from their own assets, may
pay financial institutions supplemental fees for the performance of substantial
sales services, distribution-related support services, or shareholder services.
The support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of Shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Trust at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
----------- -------------------------
<C> <S>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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 Services Company may choose voluntarily to waive a portion of its fee.
- --------------------------------------------------------------------------------
NET ASSET VALUE
The Trust attempts to stabilize the net asset value of Shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per Share is determined by subtracting liabilities from total assets and
dividing the remainder by the number of Shares outstanding. The Trust 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, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
- --------------------------------------------------------------------------------
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock Exchange
is open for business. Shares may be purchased as described below, either through
a financial institution (such as a bank or broker/dealer) or by wire or by check
directly from the Trust, with a minimum initial investment of $500 or more or
additional investments of as little as $100. The minimum initial and subsequent
investments for retirement plans are only $50. Financial institutions may impose
different minimum investment requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The Trust
reserves the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and returning
the new account form available from the Trust before Shares can be purchased.
PURCHASING SHARES THROUGH
A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a sales
agreement with the distributor. Orders are considered received when the Trust
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly. Financial institutions may charge additional fees
for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by wire by calling the Trust before 3:00 p.m. (Eastern
time) to place an order. The order is considered received immediately. Payment
by federal funds must be received before 3:00 p.m. (Eastern time) in order to
begin earning dividends that same day. Federal funds should be wired as follows:
Federated Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention: EDGEWIRE; For Credit to: Liberty U.S. Government Money
Market Trust, Share Class name; Fund Number (this number can be found on the
account statement or by contacting the Trust); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions on
wire purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made payable
to Liberty U.S. Government Money Market Trust--Share Class name. Please include
an account number on the check. Orders by mail are considered received when
payment by check is converted into federal funds (normally the business day
after the check is received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member and
invested in Trust shares. Shareholders should contact their financial
institution or the Trust to participate in this program.
CONVERSION OF CLASS B SHARES
Class B Shares will automatically convert into Class A Shares on or around the
fifteenth of the month, eight full years after the purchase date, except as
noted below, and will no longer be subject to a distribution services fee (see
"Distribution of Shares"). Such conversion will be on the basis of the relative
net asset value per Share, without the imposition of any sales charge, fee or
other charge. Class B Shares acquired by exchange from Class B Shares of certain
other funds for which affiliates of Federated Investors serve as investment
advisers or principal underwriter (the "Federated Funds") as listed herein will
convert into Class A Shares based on the time of the initial purchase. For
purposes of conversion to Class A Shares, Shares purchased through the
reinvestment of dividends and distributions paid on Class B Shares will be
considered to be held in a separate sub-account. Each time any Class B Shares in
the shareholder's account (other than those in the sub-account) convert to Class
A Shares, an equal pro rata portion of the Class B Shares in the sub-account
will also convert to Class A Shares. The conversion of Class B Shares to Class A
Shares is subject to the continuing availability of a ruling form 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.
Orders for $250,000 or more of Class B Shares will automatically be invested in
Class A Shares.
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
CLASS A SHARES
Class A shareholders may exchange all or some of their Shares for Class A Shares
of other Federated Funds at net asset value. Neither the Trust nor any of the
Federated Funds imposes any additional fees on exchanges. Shareholders in
certain other Federated Funds may exchange all or some of their shares for Class
A Shares.
CLASS B SHARES
Class B Shareholders may exchange all or some of their Shares for Class B Shares
of other Federated Funds. (Not all Federated Funds currently offer Class B
Shares. Contact your financial institution regarding the availability of other
Class B Shares of the Federated Funds). Exchanges are made at net asset value
without being assessed a contingent deferred sales charge on the exchanged
Shares. To the extent that a shareholder exchanges Shares for Class B Shares of
other Federated Funds, the time for which the exchanged-for Shares are to be
held will be added to the time for which exchanged-from Shares were held for
purposes of satisfying the applicable holding period.
Please contact your financial institution directly or Federated Securities Corp.
at 1-800-245-5051 for information on and prospectuses for the Federated Funds in
which your Shares may be exchanged free of charge.
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 proceeds invested in the same
class of shares of the other fund. The Trust reserves the right to reject any
exchange. The exchange privilege may be modified or terminated at any time.
Shareholders will be notified of the modification or termination of the exchange
privilege.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges for Federated Funds may be given in writing or by
telephone. Written instructions may require a signature guarantee. Shareholders
of the Trust may have difficulty in making exchanges by telephone through
brokers and other financial institutions during times of drastic economic or
market changes. If a shareholder cannot contact his broker or financial
institution by telephone, it is recommended that an exchange request be made in
writing and sent by overnight mail to Federated Shareholder Services Company,
1099 Hingham Street, Rockland, MA 02370-3317.
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. If the instructions are given by a broker, a telephone authorization form
completed by the broker must be on file with the Trust. If reasonable procedures
are not followed by the Trust, it may be liable for losses due to unauthorized
or fraudulent telephone instructions. Shares may be exchanged between two funds
by telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to: Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600 and deposited to the shareholder's account before being
exchanged. Telephone exchange instructions are recorded and will be binding upon
the shareholder. Such instructions will be processed as of 4:00 p.m. (Eastern
time) and must be received by the Trust before that time for Shares to be
exchanged the same day. Shareholders exchanging into a fund will begin receiving
dividends the following business day. This privilege may be modified or
terminated at any time.
- --------------------------------------------------------------------------------
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Trust computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES THROUGH
A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial institution.
Shares will be redeemed at the net asset value next determined after Federated
Shareholder Services Company receives the redemption request. According to the
shareholder's instructions, redemption proceeds can be sent to the financial
institution or to the shareholder by check or by wire. The financial institution
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions. Customary fees and commissions may be charged
by the financial institution for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Trust provided the Trust
has a properly completed authorization form. These forms can be obtained from
Federated Securities Corp. Proceeds from redemption requests received before
12:00 noon (Eastern time) will be wired the same day to the shareholder's
account at a domestic commercial bank which is a member of the Federal Reserve
System, but will not include that day's dividend. Proceeds from redemption
requests received after that time include that day's dividend but will be wired
the following business day. Under limited circumstances, arrangements may be
made with the distributor for same-day payment of proceeds, without that day's
dividend, for redemption requests received before 2:00 p.m. (Eastern time).
Proceeds from redeemed shares purchased by check or through ACH will not be
wired until that method of payment has cleared. Proceeds from redemption
requests on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Trust shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
The financial institution which maintains investor accounts with the Trust must
do so on a fully disclosed basis unless it accounts for share ownership periods
used in calculating the contingent deferred sales charge (See "Contingent
Deferred Sales Charge"). In addition, advance payments made to financial
institutions may be subject to reclaim by the distributor for accounts
transferred to financial institutions which do not maintain investor accounts on
a fully disclosed basis and do not account for share ownership periods (See
"Supplemental Payments to Financial Institutions").
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Trust name and the Share Class
designation; the account name as registered with the Trust; the account number;
and the number of Shares to be redeemed or the dollar amount requested. All
owners of the account must sign the request exactly as the shares are
registered. Normally, a check for the proceeds is mailed within one business
day, but in no event more than seven days, after the receipt of a proper written
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
Shareholders requesting 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 their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; 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.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders to
redeem their Trust Shares. Shareholder accounts will continue to receive the
daily dividend declared on the Shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the check
writing program, for payment. However, checks should never be made payable or
sent to UMB Bank, N.A. or the Trust to redeem Shares, and a check may not be
written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem Shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. Shareholders may apply for
participation in this program through their financial institutions or the Trust.
CONTINGENT DEFERRED SALES CHARGE
Shareholders may be subject to a contingent deferred sales charge upon
redemption of their Shares under the following circumstances:
CLASS A SHARES
Class A Shares purchased through exchange from another Federated Fund which was
purchased under a periodic special offering with the proceeds of a redemption of
shares of an unaffiliated investment company purchased or sold with a sales
charge and not distributed by Federated Securities Corp. may be charged a
contingent deferred sales charge of .50 of 1.00% for redemptions made within one
full year of purchase. Any applicable contingent deferred sales charge will be
imposed on the lesser of the net asset value of the redeemed Shares at the time
of purchase or the net asset value of the redeemed Shares at the time of
redemption.
CLASS B SHARES
Shareholders redeeming Class B Shares from their Trust accounts within six full
years of the purchase date of those Shares will be charged a contingent deferred
sales charge by the Trust's distributor. Any applicable contingent deferred
sales charge will be imposed on the lesser of the net asset value of the
redeemed Shares at the time of purchase or the net asset value of the redeemed
Shares at the time of redemption in accordance with the following schedule:
<TABLE>
<CAPTION>
CONTINGENT
YEAR OF REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
- ------------------------ ----------------
<S> <C>
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
</TABLE>
The contingent deferred sales charge on Class B Shares will be deducted from the
redemption proceeds otherwise payable to the shareholder and will be retained by
the distributor. The contingent deferred sales charge will not be imposed with
respect to: (1) Shares acquired through the reinvestment of dividends or
distributions of long-term capital gains; and (2) Shares held for more than six
full years from the date of purchase with respect to Class B Shares and one full
year from the date of purchase with respect to applicable Class A Shares.
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 with respect
to Class B Shares and one full year from the date of purchase with respect to
applicable Class A Shares; (3) Shares held for fewer than six years with respect
to Class B Shares and one full year from the date of purchase with respect to
applicable Class A Shares on a first-in, first-out basis. A contingent deferred
sales charge is not assessed in connection with an exchange of Trust Shares for
shares of other Federated Funds in the same class (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").
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. 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, 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 such entities. The Trustees reserve the right to
discontinue elimination of the contingent deferred sales charge. Shareholders
will be notified of such elimination. Any Shares purchased prior to the
termination of such waiver would have the contingent deferred sales charge
eliminated as provided in the Trust's prospectus at the time of the purchase of
the Shares. If a shareholder making a redemption qualifies for an elimination of
the contingent deferred sales charge, the shareholder must notify Federated
Securities Corp. or the transfer agent in writing that he is entitled to such
elimination.
- --------------------------------------------------------------------------------
ACCOUNT AND SHARE
INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional Shares of the Trust unless cash
payments are requested by writing to the Trust.
CAPITAL GAINS
The Trust does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Trust will distribute in cash or additional Shares any realized
net long-term capital gains at least once every 12 months.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a Share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust or Federated Shareholder
Services Company in writing. Monthly confirmations are sent to report all
transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account, except accounts maintained by retirement plans,
and pay the proceeds to the shareholder if the account balance falls below a
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.
VOTING RIGHTS
Each Share of the Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
Shares of all classes in the Trust have equal voting rights, except that in
matters affecting only a particular class, only Shares of that class are
entitled to vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
- --------------------------------------------------------------------------------
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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Shares may
be subject to personal property taxes imposed by counties, municipalities, and
school districts in Pennsylvania to the extent that the portfolio securities in
the Trust would be subject to such taxes if owned directly by residents of those
jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
From time to time, the Trust advertises its total return, yield, and effective
yield. The performance or figures will be calculated separately for each class
of shares.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
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 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.
Total return represents the change, over a specified period of time, in the
value of an investment in the shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Liberty U.S. Government Money Market Trust
Class A Shares Federated Investors Tower
Class B Shares Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------
Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, PA 15222-3779
- --------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02266-8600
- --------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
- --------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- --------------------------------------------------------------------------------
</TABLE>
LIBERTY U.S. GOVERNMENT
MONEY MARKET TRUST
CLASS A SHARES
CLASS B SHARES
PROSPECTUS
An Open-End, Diversified,
Management Investment Company
Prospectus dated May 31, 1996
[LOGO OF FEDERATED INVESTORS]
Cusip 531485100
Cusip 531485209
G00701-03 (5/96)
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
CLASS A SHARES
CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Liberty U.S. Government Money Market Trust (the "Trust")
dated May 31, 1996. This Statement is not a prospectus. You may request
a copy of a prospectus or a paper copy of this Statement, if you have
received it electronically, free of charge by calling 1-800-245-4770.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated May 31, 1996
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp is the distributor of the Trust and is a
subsidiary of Federated Investors
CUSIP 531485100
CUSIP 531485209
8062809B (5/96)
GENERAL INFORMATION 3
INVESTMENT POLICIES 3
Acceptable Investments 3
When-Issued and Delayed Delivery Transactions 3
Repurchase Agreements 4
INVESTMENT LIMITATIONS 4
Regulatory Compliance 7
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST MANAGEMENT 8
Share Ownership 16
Trustee Compensation 17
Trustee Liability 19
INVESTMENT ADVISORY SERVICES 19
Investment Adviser 19
Advisory Fees 19
BROKERAGE TRANSACTIONS 20
OTHER SERVICES 22
Trust Administration 22
Custodian and Portfolio Accountant 22
Transfer Agent 23
Independent Public Accountants 23
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES 23
DETERMINING NET ASSET VALUE 24
REDEMPTION IN KIND 25
MASSACHUSETTS PARTNERSHIP LAW 26
THE TRUST'S TAX STATUS 26
PERFORMANCE INFORMATION 27
Yield 27
Effective Yield 27
Total Return 28
Performance Comparisons 28
ABOUT FEDERATED INVESTORS 30
Mutual Fund Market 31
Institutional Clients 31
Trust Organizations 31
Broker/Dealers and Bank Broker/Dealer Subsidiaries 32
FINANCIAL STATEMENTS 32
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated August 30, 1979. 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
Statement of Additional Information relates to both classes of Shares.
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may not be changed
by the Board of Trustees without shareholder approval.
ACCEPTABLE INVESTMENTS
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 that of fixed interest rate U.S. government securities having
maturities equal to the interest rate adjustment dates of the variable rate
U.S. government securities. The Trust may purchase variable rate U.S.
government securities upon the determination by the Board of Trustees that
the interest rate as adjusted will cause the instrument to have a current
market value that approximates its par value on the adjustment date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Trust in a dollar amount sufficient to make payment for the securities to be
purchased are: segregated on the Trust`s records at the trade date; marked
to market daily; and maintained until the transaction is settled. The Trust
does not intend to engage in when-issued and delayed delivery transactions
to an extent that would cause the segregation of more than 20% of the total
value of its assets.
REPURCHASE AGREEMENTS
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
SELLING SHORT AND BUYING ON MARGIN
The Trust will not purchase any portfolio securities or sell any portfolio
instruments short but it may obtain such short-term credits as may be
necessary for clearance of purchases and sales of portfolio instruments.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Trust will not issue senior securities except as permitted by its
investment objective and policies. If a percentage limitation is adhered to
at the time of the investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then (a) only in amounts not in
excess of 5% of the value of its total assets or (b) 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 any portfolio
instruments. If the value of the Trust's total assets, including the amount
borrowed, falls below 300% of its borrowings the Trust will reduce its
borrowings. This borrowing 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 securities is
deemed to be inconvenient or disadvantageous. Interest paid by the Trust on
borrowed funds will not be available for investment. While any such
borrowings are outstanding, no portfolio instruments may be purchased by the
Trust.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate assets of the Trust
except in connection with any borrowings described in paragraph (2) above,
and in amounts not in excess of the lesser of the dollar amount borrowed or
10% of the value of the Trust's assets at the time of such borrowings.
LENDING CASH OR SECURITIES
The Trust will not lend any such assets except portfolio securities. (This
shall not prevent the purchase or holding of bonds, debentures, notes,
certificates of indebtedness or other debt securities of an issuer,
repurchase agreements or other transactions which are permitted by the
Trust's investment objective and policies or Declaration of Trust.)
The above limitations cannot be changed without shareholder approval. The
following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Trust will not invest in securities subject to restrictions on resale
under federal securities law.
INVESTING IN ILLIQUID SECURITIES
The Trust will not invest more than 10% of the value of its net assets in
illiquid securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Trust will not purchase securities of other investment companies, except
as part of a merger, consolidation, or other acquisition.
INVESTING IN NEW ISSUERS
The Trust will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING FOR CONTROL
The Trust will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
The Trust will not purchase or retain the securities of any issuer if the
Officers and Trustees of the Trust or its investment adviser, owning
individually more than .50 of 1% of the issuer's securities, together own
more than 5% of the issuer's securities.
INVESTING IN OPTIONS
The Trust will not invest in puts, calls, straddles, spreads, or any
combination of them.
INVESTING IN MINERALS
The Trust will not purchase or sell interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase the
securities of issuers which invest in or sponsor such programs.
For purposes of the above limitations, the Trust considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be "cash items."
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 limitation.
The Trust did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present
intent to do so during the coming fiscal year.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this 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. 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.
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Liberty U.S. Government Money Market Trust, and principal
occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, President of the
Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director or Trustee of the Funds; formerly, Senior
Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village
Development Corporation; Partner or Trustee in private real estate ventures
in Southwest Florida; Director or Trustee of the Funds; formerly, President,
Naples Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director or Trustee 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
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director or Trustee of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee or Managing General Partner of the
Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online
Computer Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Management Center; Director or Trustee of the Funds; President Emeritus,
University of Pittsburgh; founding Chairman, National Advisory Council for
Environmental Policy and Technology and Federal Emergency Management
Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.
J. Christopher Donahue *
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Services Company, and Federated
Shareholder Services; President or Executive Vice President of the Funds;
Director or Trustee of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive Vice
President and Secretary of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings of
the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: 111 Corcoran Funds; Annuity Management Series; Arrow
Funds; Automated Government Money Trust; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated
Adjustable Rate U.S. Government Fund, Inc.; Federated ARMs Fund; Federated
Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income
Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; Fortress Utility Fund, Inc.; High Yield Cash Trust; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc. - 1999; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust`s outstanding
Shares.
As of May 6, 1996, no shareholder of record owned 5% or more of the
outstanding Class A Shares of the Trust:
As of May 6, 1996, the following shareholders of record owned 5% or more of
the outstanding Class B Shares of the Trust: First Union National Bank,
Pompano Beach, FL, owned approximately 392,632 Shares (6.03%); National
Community Education Association Endowment Fund, Alexandria, VA, owned
approximately 663,292 Shares (10.19%); and Dain Bosworth Inc., Provo, UT,
owned approximately 715,632 Shares (10.99%).
TRUSTEE COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex
Thomas G. Bigley,++ $1,687.00 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, Jr., $1,821.17 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $1,821.17 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $1,821.17 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $1,687.00 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $1,821.17 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Peter E. Madden, $1,687.00 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $1,687.00 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $1,687.00 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar,$1,687.00 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $1,687.00 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
* Information is furnished for the fiscal year ended March 31, 1996.
+ The information is provided for the last calendar year.
++ Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through September 30, 1995. On October 1, 1995, he
was appointed a Director on 15 additional Federated Funds.
TRUSTEE LIABILITY
The 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 ADVISORY SERVICES
INVESTMENT ADVISER
The Trust's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
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, Federated Advisers receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
March 31, 1996, 1995, and 1994, the adviser earned $3,471,524, $3,708,178,
and $4,147,512, respectively, none of which was waived.
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 fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and selects
brokers and dealers subject to guidelines established by 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. Research services provided by brokers and dealers may be used by
the adviser or its affiliates in advising the Trust 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. 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. During the fiscal
years ended March 31, 1996, 1995, and 1994, the Trust paid no brokerage
commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to invest
in, or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the
adviser to be equitable to each. In some cases, this procedure may adversely
affect the price paid or received by the Trust or the size of the position
obtained or disposed of by the Trust. In other cases, however, it is
believed that coordination and the ability to participate in volume
transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Trust's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to as
the "Administrators." For the fiscal years ended March 31, 1996, 1995, and
1994, the Administrators earned $533,071, $571,385, and $985,326,
respectively. 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 a director of Commercial Data Services, Inc., a company
which provides computer processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Trust's portfolio investments. The fee paid for this service is based
upon the level of the Trust's average daily net assets for the period plus
out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based on the size, type,
and number of accounts and transactions made by shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur Andersen LLP,
Pittsburgh, PA.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
With respect to Class B Shares, the Trust has adopted a Distribution Plan in
accordance with Investment Company Act Rule 12b-1. Additionally, the Trust
has adopted a Shareholder Services Agreement with respect to both classes of
Shares.
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 inquires; and assisting clients in changing dividend options, account
designations, and addresses.
By adopting the Distribution Plan, (Class B Shares only) the Trustees expect
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's 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 year ended March 31, 1996, Class B Shares incurred $21,112 in
distribution service fees, none of which was waived. In addition, for the
fiscal year ended March 31, 1996, payments in the amount of $353,932 were
made pursuant to the Shareholder Services Agreement, all of which was paid
to financial institutions.
DETERMINING NET ASSET VALUE
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.
Accordingly, 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
opposite may be true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in 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. The 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 0.5 of 1%
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.
REDEMPTION IN KIND
The Trust is obligated to redeem Shares solely in cash up to $250,000 or 1%
of the Trust's net asset value, whichever is less, for any one shareholder
within a 90-day period. Any redemption beyond this amount will also be in
cash unless the Trustees determine that further payments should be in kind.
In such cases, the Trust will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Trust
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is not
as liquid as a cash redemption. If redemption is made in kind, shareholders
who sell these securities could receive less than the redemption value and
could incur certain transaction costs.
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 by the Declaration of Trust 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.
THE TRUST'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, 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.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in shares of the Trust, the performance will be reduced for those
shareholders paying those fees.
YIELD
The yield is calculated 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.
For the seven-day period ended March 31, 1996, the yield for Class A Shares
was 4.35%, Class B Shares was 3.54%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to the
365/7th power; and subtracting 1 from the result.
For the seven-day period ended March 31, 1996, the effective yield for Class
A Shares was 4.44%, Class B Shares was 3.60%.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed
by multiplying the number of Shares owned at the end of the period by the
net asset value per Share at the end of the period. The number of Shares
owned at the end of the period is based on the number of Shares purchased at
the beginning of the period with $1,000, adjusted over the period by any
additional Shares, assuming the monthly reinvestment of all dividends and
distributions.
For the one-year, five-year and ten-year periods ended March 31, 1996, the
average annual total returns were 4.89%, 3.70%, and 5.27%, respectively, for
Class A Shares.
For the fiscal year ended March 31, 1996, and for the period from December
17, 1994 (date of initial public investment) to March 31, 1996, the average
annual total returns were 4.04% and 4.02%, respectively, for Class B Shares.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Trust
uses in advertising may include:
O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of all
income dividends and capital gains distributions, if any.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12 month-to-date investment results for the same
money funds.
o MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
o SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in which
it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Trust portfolio managers and their views and analysis on how
such developments could affect the Trust. In addition, advertising and sales
literature may quote statistics and give general information about the
mutual fund industry, including the growth of the industry, from sources
such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts,
and traders dedicated to specific market sectors. These traders handle
trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed more
than $40.2 billion in assets across approximately 47 money market funds,
including 17 government, 10 prime and 20 municipal with assets approximating
$20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for
a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
*Source: Investment Company Institute
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial institutions has earned it high rankings in several DALBAR
Surveys. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Division.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended March 31, 1996 are
incorporated herein by reference to the Annual Report of the Trust dated
March 31, 1996 (File Nos. 2-65447 and 811-2956). A copy of this report may
