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, 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
("FDIC"), 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,
1998, with the Securities and Exchange Commission ("SEC"). 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 1-800-341-7400. To
obtain other information, or make inquiries about the Trust, contact the Trust
at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Trust is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated May 31, 1998
TABLE OF CONTENTS
Summary of Trust Expenses 1 Financial Highlights--Class A Shares 2 Financial
Highlights--Class B Shares 3 General Information 4 Year 2000 Statement 4
Investment Information 4 Investment Objective 4 Investment Policies 4
Investment Limitations 5 Trust Information 5 Management of the Trust 5
Distribution of Shares 6 Administration of the Trust 7 Net Asset Value 7 How to
Purchase Shares 7 Purchasing Shares Through a Financial Institution 8
Purchasing Shares by Wire 8 Purchasing Shares by Check 8 Special Purchase
Features 8 Conversion of Class B Shares 8 Exchange Privilege 8 Class A Shares 8
Class B Shares 9 Requirements for Exchange 9 Tax Consequences 9 Making an
Exchange 9 Telephone Instructions 9 How to Redeem Shares 9 Redeeming Shares
Through a Financial Institution 9 Redeeming Shares by Telephone 10 Redeeming
Shares by Mail 10 Special Redemption Features 10 Account and Share Information
11 Dividends 11 Capital Gains 11 Account Activity 11 Accounts with Low Balances
11 Contingent Deferred Sales Charge 11 Voting Rights 12 Tax Information 12
Federal Income Tax 12 State and Local Taxes 12 Performance Information Inside
Back Cover
SUMMARY OF TRUST EXPENSES
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering None None
price)
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of None None
offering price)
Contingent Deferred Sales Charge (as a percentage of original purchase price 0.00% 5.50%
or redemption proceeds, as applicable)(1)
Redemption Fee (as a percentage of amount redeemed, if applicable) None None
Exchange Fee None None
<CAPTION>
ANNUAL OPERATING EXPENSE
(As a percentage of average net assets)
<S> <C> <C> <C> <C>
Management Fee (after waiver)(2) 0.47% 0.47%
12b-1 Fee None 0.75%
Total Other Expenses 0.59% 0.76%
Shareholder Services Fee (after waiver)(3) 0.05% 0.22%
Total Operating Expenses(4) 1.06% 1.98%(5)
</TABLE>
(1) Shareholders of Class A Shares 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. For shareholders of Class B Shares, the
contingent deferred sales charge is 5.50% in the first year declining to 1.00%
in the sixth year and 0.00% thereafter. For a more complete description, see
"Contingent Deferred Sales Charge."
(2) The management fee for Class A Shares and Class B Shares have been reduced
to reflect the voluntary waivers of portions of the management fee. The adviser
can terminate these voluntary waivers at any time at its sole discretion. The
maximum management fee is 0.49%.
(3) The shareholder services fees for Class A Shares and Class B Shares have
been reduced to reflect the voluntary waivers of portions of the shareholder
services fee. The shareholder service provider can terminate these voluntary
waivers at any time at its sole discretion. The maximum shareholder services fee
is 0.25%.
(4) The total operating expenses for Class A Shares and Class B Shares would
have been 1.28% and 2.03%, respectively, absent the voluntary waivers described
in note 2 and note 3 above.
(5) Class B Shares convert to Class A Shares (which pay lower ongoing expenses)
approximately eight years after purchase.
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder of the Trust 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 CLASS A CLASS B
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return, (2) redemption at the end of each time period;
and (3) payment of the maximum sales charge.
<S> <C> <C>
1 Year $ 11 $ 77
3 Years $ 34 $106
5 Years $ 58 $130
10 Years $129 $206
You would pay the following expenses on the same investment,
assuming no redemption.
<S> <C> <C>
1 Year $ 11 $ 20
3 Years $ 34 $ 62
5 Years $ 58 $107
10 Years $129 $206
</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
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Trust's
independent public accountants. Their report, dated May 13, 1998, on the Trust's
financial statements for the year ended March 31, 1998, and on the following
table for each of 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 the notes thereto, which may obtained from the
Trust.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.04 0.05 0.04 0.02 0.03 0.05 0.07 0.08 0.07
LESS DISTRIBUTIONS
Distributions from net (0.05) (0.04) (0.05) (0.04) (0.02) (0.03) (0.05) (0.07) (0.08) (0.07)
investment income
NET ASSET VALUE, END OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
PERIOD
TOTAL RETURN(A) 4.67% 4.43% 4.89% 3.93% 2.34% 2.71% 4.66% 7.11% 8.24% 7.44%
RATIOS TO AVERAGE NET
ASSETS
Expenses 1.06% 1.06% 1.10% 1.12% 1.01% 1.04% 1.03% 1.01% 1.02% 1.01%
Net investment income 4.57% 4.33% 4.78% 3.83% 2.31% 2.69% 4.59% 6.89% 7.94% 7.19%
Expense 0.22% 0.29% 0.20% -- -- -- -- -- -- --
waiver/reimbursement(b)
SUPPLEMENTAL DATA
Net assets, end of $611,630 $658,731 $697,472 $715,257 $805,907$919,883 $1,173,685 $1,393,380 $1,443,347$1,386,704
period (000 omitted)
</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.
FURTHER INFORMATION ABOUT THE TRUST'S PERFORMANCE IS CONTAINED IN THE
TRUST'S ANNUAL REPORT DATED MARCH 31, 1998, WHICH CAN BE OBTAINED FREE OF
CHARGE.
FINANCIAL HIGHLIGHTS --CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen LLP, the Trust's
independent public accountants. Their report, dated May 13, 1998, on the Trust's
financial statements for the year ended March 31, 1998, and on the following
table for each of 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 the notes thereto, which may obtained from the
Trust.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1998 1997 1996 1995(A)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.04 0.04 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.04) (0.04) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.71% 3.59% 4.04% 1.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.98% 1.87% 1.91% 1.95%*
Net investment income 3.65% 3.58% 3.91% 4.15%*
Expense waiver/reimbursement(c) 0.05% 0.23% 0.14% --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $19,146 $28,337 $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.
FURTHER INFORMATION ABOUT THE TRUST'S PERFORMANCE IS CONTAINED IN THE
TRUST'S ANNUAL REPORT DATED MARCH 31, 1998, WHICH CAN BE OBTAINED FREE OF
CHARGE.
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
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 $1,500. However, the minimum initial investment for a
retirement account in any class is $250. Subsequent investments in any class and
retirement plans must be in amounts of at least $100.
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Trust's
service providers (among them, the adviser, distributor, administrator, and
transfer agent) must ensure that their computer systems are adjusted to properly
process and calculate date-related information from and after January 1, 2000.
Many software programs and, to a lesser extent, computer hardware in use today
cannot distinguish the year 2000 from the year 1900. This design flaw may have a
negative impact in the handling of securities trades, pricing and accounting
services. The Trust and its service providers are actively working on necessary
changes to computer systems to deal with the year 2000 and reasonably believe
that systems will be year 2000 compliant when required. The Trust is continuing
to analyze the financial impact of instituting a year 2000 compliant program on
its operations.
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 diversification and other 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 be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in these policies
becomes effective.
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 issued or guaranteed by U.S.
government agencies and instrumentalities supported by the full faith
and credit of the United States;
* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding;
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities; and
* short-term instruments of banks and savings associations where the
principal amount of the instrument is fully insured by the Bank Insurance
Fund or the Savings Association Fund, both of which are administered by the
FDIC.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government 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 ASSOCIATIONS
The short-term instruments of banks and savings 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.
AGENCY MASTER DEMAND NOTES
The Trust may enter into master demand notes with various federal agencies and
instrumentalities. Under a master demand note, the Trust has the right to
increase or decrease the amount of the note on a daily basis within specified
maximum and minimum amounts. Master demand notes also normally provide for full
or partial repayment upon seven or more days notice by either the Trust or the
borrower and bear interest at a variable rate. The Trust relies on master demand
notes, in part, to provide daily liquidity. To the extent that the Trust cannot
obtain liquidity through master demand notes, it may be required to maintain a
larger cash position, invest more assets in securities with current maturities,
or dispose of assets at a gain or loss to maintain sufficient liquidity.
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.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Trust may invest its assets in securities of other investment companies as
an efficient means of carrying out its investment policies. It should be noted
that investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Trust in shares of other investment companies
may be subject to such duplicate expenses.
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:
FEE AS
AVERAGE DAILY PERCENTAGE OF
NET ASSETS AVERAGE DAILY NET ASSETS
First $500 million 0.500%
Second $500 million 0.475%
Third $500 million 0.450%
Fourth $500 million 0.425%
Over $2 billion 0.400%
The adviser 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 $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through approximately 4,000 financial institutions
nationwide.
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 5.50% 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.
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 0.75% of the average daily net assets 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 0.75% 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 the average daily net assets of the
Trust 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 Trust's investment 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 specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
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, Martin Luther
King, Jr. 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 $1,500 or more or
additional investments of as little as $100. The minimum initial investment and
subsequent investments for retirement plans are only $250 and $100,
respectively. 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 Federal Reserve 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 $50 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. 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 FDIC; 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, other than
retirement accounts subject to required minimum distributions, 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.
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. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
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 capital gains at least once every 12 months.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Trust will not issue share certificates.
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 $1,500 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.
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 0.50% 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:
YEARS OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
First 5.50%
Second 4.75%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and thereafter 0.00%
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 the last
surviving 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 701U2; (3) involuntary redemptions by
the Trust of Shares in shareholder accounts that do not comply with the minimum
balance requirements; and (4) qualifying redemptions of Class B Shares under a
Systematic Withdrawal Program. To qualify for elimination of the contingent
deferred sales charge through a Systematic Withdrawal Program, the redemptions
of Class B Shares must be from an account: that is at least 12 months old, has
all Trust distributions reinvested in Trust Shares, and has a value of at least
$10,000 when the Systematic Withdrawal Program is established. Qualifying
redemptions may not exceed 1.00% monthly of the account value as periodically
determined by the Trust. For more information regarding the elimination of the
contingent deferred sales charge through a Systematic Withdrawal Program contact
your financial intermediary or the Trust. 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, and their immediate family members; 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 or modify the elimination of the contingent deferred sales charge.
Shareholders will be notified of a discontinuation. 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 the shareholder
is entitled to such elimination.
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. 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
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Trust advertises its yield, effective yield, and total
return. The performance 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.
[Graphic]
Liberty U.S. Government Money Market Trust
Class A Shares, Class B Shares
PROSPECTUS
MAY 31, 1998
An Open-End, Management Investment Company
LIBERTY U.S. GOVERNMENT
MONEY MARKET TRUST
CLASS A SHARES
CLASS B SHARES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
Federated Securities Corp., Distribution
1-800-341-7400
www.federatedinvestors.com
Cusip 531485100
Cusip 531485209
G00701-03 (5/98)
[Graphic]
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, 1998.
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 1-800-341-7400.
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated May 31, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 531485100
Cusip 531485209
8062809B (5/98)
[Graphic]
TABLE OF CONTENTS
INVESTMENT POLICIES 1 Acceptable Investments 1 When-Issued and Delayed Delivery
Transactions 1 Repurchase Agreements 1 Investing in Securities of Other
Investment Companies 1 INVESTMENT LIMITATIONS 1 Selling Short and Buying on
Margin 1 Issuing Senior Securities and Borrowing Money 1 Pledging Assets 2
Lending Cash or Securities 2 Investing in Restricted Securities 2 Investing in
Illiquid Securities 2 Investing for Control 2 Investing in Options 2 Regulatory
Compliance 2 LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST MANAGEMENT 3 Share
Ownership 6 Trustee Compensation 7 Trustee Liability 7 INVESTMENT ADVISORY
SERVICES 7 Investment Adviser 7 Advisory Fees 7 BROKERAGE TRANSACTIONS 8 OTHER
SERVICES 8 Trust Administration 8 Custodian and Portfolio Accountant 8 Transfer
Agent 8 Independent Public Accountants 8 DISTRIBUTION PLAN AND SHAREHOLDER
SERVICES 8 DETERMINING NET ASSET VALUE 9 REDEMPTION IN KIND 9 Elimination of
the Contingent Deferred Sales Charge 10 MASSACHUSETTS PARTNERSHIP LAW 10 THE
TRUST'S TAX STATUS 10 PERFORMANCE INFORMATION 10 Yield 10 Effective Yield 10
Total Return 11 Performance Comparisons 11 Economic and Market Information 11
ABOUT FEDERATED INVESTORS 11 Mutual Fund Market 12 Institutional Clients 12
Bank Marketing 12 Broker/Dealers and Bank Broker/Dealer Subsidiaries 12
FINANCIAL STATEMENTS 12
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be changed by the
Board of Trustees (the "Trustees") without shareholder approval. Shareholders
will be notified before any material change in these policies becomes effective.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Trust may invest in the securities of affiliated money market funds as an
efficient means of managing the Trust's uninvested cash.
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 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 FOR CONTROL
The Trust will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN OPTIONS
The Trust will not invest in puts, calls, straddles, spreads, or any combination
of them.
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
Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Member of Executive Committee, Children's Hospital of Pittsburgh;
formerly, Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.
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; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
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.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
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, 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.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
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
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; 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; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University, and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; 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 Shareholder Services Company and
Federated Shareholder Services; Director, Federated Services Company;
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 Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
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
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some 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.
* 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 referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
111 Corcoran 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 American Leaders Fund,
Inc.; Federated ARMs Fund; Federated Core Trust; 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 Investment Portfolios; Federated Investment Trust; 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.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.--1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds; 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; WesMark Funds; WCT Funds; and World Investment Series,
Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust.
As of May 5, 1998, no shareholder of record owned 5% or more of the outstanding
Class A Shares of the Trust:
As of May 5, 1998, no shareholder of record owned 5% or more of the outstanding
Class B Shares of the Trust:
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $1501.99 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy, Jr. $1,652.44 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $1,652.44 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd $1,652.44 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1501.99 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,652.44 $122,362 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward C. Gonzales $0 $0 for the Trust and
Executive Vice President and 1 other investment company in the Fund Complex
Trustee
Peter E. Madden $1501.99 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1501.99 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1501.99 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1501.99 $111,222 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended March 31, 1998.
+ The information is provided for the last calendar year.
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, 1998, 1997, and 1996, the adviser earned $3,175,542, $3,311,087, and
$3,471,524, respectively, of which $126,845, $620,370, and $0, respectively,
were waived.
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, 1998, 1997, and 1996, 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, a subsidiary of Federated Investors, served as the Trust's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
March 31, 1998, 1997, and 1996, the Administrators earned $484,666, $506,849,
and $533,071, respectively.
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 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 Class A Shares and
Class B Shares (individually and collectively referred to as "Shares" as the
context may require.)
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, 1998, Class B Shares incurred $144,718 in
distribution service fees, none of which was waived. In addition, for the fiscal
year ended March 31, 1998, the Class A Shares and Class B Shares paid
Shareholder Services Fees in the amount of $1,557,309 and $48,239, respectively,
of which $1,245,847 and $5,881, respectively, were waived.
Federated Investors and its subsidiaries may benefit from arrangements where the
Rule 12b-1 Plan fees related to Class B Shares may be paid to third-party
financial providers who have advanced commissions to financial intermediaries.
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.
ELIMINATION OF THE CONTINGENT DEFERRED SALES CHARGE
The amounts that a shareholder may withdraw under a Systematic Withdrawal
Program that qualify for elimination of the Contingent Deferred Sales Charge may
not exceed 12% annually with reference initially to the value of the Class B
Shares upon establishment of the Systematic Withdrawal Program and then as
calculated at the annual valuation date. Redemptions on a qualifying Systematic
Withdrawal Program can be made at a rate of 1.00% monthly, 3.00% quarterly, or
6.00% semi-annually with reference to the applicable account valuation amount.
Amounts that exceed the 12.00% annual limit for redemption, as described, may be
subject to the Contingent Deferred Sales Charge. 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 12
month holding requirement. However, for purposes of meeting the $10,000 minimum
account value requirement, Class B Share accounts will not be aggregated.
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;
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, 1998, the yield for Class A Shares was
4.61%, Class B Shares was 3.66%.
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, 1998, the effective yield for Class A
Shares was 4.72%, Class B Shares was 3.73%.
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, 1998, the
average annual total returns were 4.67%, 4.05% and 5.03%, respectively, for
Class A Shares.
For the fiscal year ended March 31, 1998, and for the period from December 17,
1994 (date of initial public investment) to March 31, 1998, the average annual
total returns were (1.97%) and 2.85%, 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:
* 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.
* IBC/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.
* MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
* 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 portfolio managers and their views and analysis on how such
developments could affect the funds. 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,
1997, Federated Investors managed more than $63.1 billion in assets across 51
money market funds, including 18 government, 11 prime and 22 municipal with
assets approximating $35 billion, $17.1 billion and $10.9 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 and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 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 approximately 900 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.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
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 Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
FINANCIAL STATEMENTS
The Financial Statements for the fiscal year ended March 31, 1998, are
incorporated herein by reference to the Annual Report of the Trust dated March
31, 1998 (File Nos. 2-65447 and 811-2956). A copy of this report may be obtained
without charge by contacting the Trust.
* Source: Investment Company Institute
