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Liberty U.S. Government Money Market Trust
18TH SEMI-ANNUAL REPORT
SEPTEMBER 30, 1998
ESTABLISHED 1980
PRESIDENT'S MESSAGE
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Dear Shareholder:
Liberty U.S. Government Money Market Trust was created in 1980, and I am
pleased to present its 18th Semi-Annual Report. This report covers the
first half of the trust's fiscal year which is the six-month period from
April 1, 1998 through September 30, 1998. It begins with an interview
with the trust's portfolio manager, Susan R. Hill, Vice President of
Federated Advisers. Following her discussion are two additional items of
shareholder interest. First is a complete listing of the trust's
holdings, and second is the publication of the trust's financial
statements.
This money market fund keeps your cash at work pursuing daily income
from a portfolio of short-term U.S. government securities. In addition,
the trust is managed to keep the value of your principal stable,* while
giving you daily access to your invested cash. It has done so since its
inception.
Dividends paid to shareholders during the six-month period ended
September 30, 1998, totaled $0.02 per share for both Class A Shares and
Class B Shares. At the end of the reporting period, the trust's net
assets totaled $658.9 million.
Thank you for selecting Liberty U.S. Government Money Market Trust to
keep your ready cash working and accessible.
As always, we welcome your comments and suggestions.
Sincerely,
[Graphic]
J. Christopher Donahue
President
November 15, 1998
* An investment in the trust is neither insured nor guaranteed by the Federal
Deposit Insurance Corporation or any other government agency. Although the
trust seeks to preserve the value of your investment at $1.00 per share, it
is possible to lose money by investing in the trust.
INVESTMENT REVIEW
[Graphic]
Susan R. Hill, CFA
Vice President
Federated Advisers
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WHAT IS YOUR ANALYSIS OF THE ECONOMIC ENVIRONMENT DURING THE
REPORTING PERIOD, AND ITS EFFECT ON THE SHORT-TERM MARKETPLACE?
Early in the reporting period, economic fundamentals were still
the driving factor behind movements in short-term interest
rates. With economic growth still strong, albeit slowing from
its torrid 5.50% pace of growth in the first quarter of 1998,
market participants were content with the idea that the Federal
Reserve Board (the "Fed") would remain on the sidelines. The anticipated
drag on the U.S. economy resulting from the economic crises in Asia
became apparent--particularly in the manufacturing sector--over the second
quarter. This slowdown lent comfort to investors that economic growth
would not be so robust as to ignite inflationary pressures.
By the third quarter of 1998, however, a dramatic shift in market
sentiment was evident. Uncertainty in the world economies resulted in
vulnerability in our domestic equity market, and led to a substantial
flight to quality to U.S. Treasury securities across the yield curve.
Economic trouble spread to include Russia and Latin America, and what
had been perceived to have been a fairly modest drag on the
U.S. economies, as a result of the remote Asian crisis, now became an
overpowering influence on the market and expectations regarding future
U.S. growth. Although economic fundamentals still remained fairly
positive in this environment, fear dominated market sentiment over this
period.
[Graphic]
HOW DID THIS ENVIRONMENT INFLUENCE THE FED'S POLICY ON RATES?
Expectations regarding the direction of monetary policy did an
abrupt about-face over the reporting period. The Fed adopted a
tightening bias in March, a reflection of their underlying
concern about inflationary pressures. By August, the Fed had
removed its tightening bias as Fed officials perceived that the
risks to the economy had become more balanced. By late August, however,
market expectations that the Fed might eventually need to ease monetary
policy to help the U.S. economy had begun to grow. This expectation
intensified throughout September, and at the September 29, 1998 Federal
Open Market Committee meeting, the Fed voted to ease monetary policy by a
modest 25 basis points. The Fed followed that move with another 25 basis
points ease on October 15, 1998, which brought the Fed Funds Target Rate
down to 5.00%. The Fed also voted to cut the discount rate from 5.00% to
4.75%.
The flight to quality resulting from investors, both abroad and at home,
seeking a safe haven from all of the uncertainty was most evident in the
Treasury bill market. The yield on the 1-year Treasury bill opened the
period at 5.40% in early April, and then traded within a range of 5.30%
to 5.40% for a number of months. By late July, however, the market
concerns became overwhelming, and the yield declined sharply over the
ensuing weeks. By the time of the Fed's action in late September, the
yield on this security was trading at 4.40%, about 100 basis points
lower than at the start of the period. A general shortage in the supply
of Treasury bills because of improvement in the overall budget picture
exacerbated the decline in rates.
The government agency market was more reflective of underlying economic
fundamentals over the period and had significantly less of a flight to
quality influence. The yield on the 1-year agency discount note began
the period at 5.50% and traded between 5.50% and 5.65% for a number of
weeks. In early August, however, yields in this sector began to decline
as well, and the yield on this security dropped to 4.80% by
September 25, 1998.
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WHAT STRATEGIES GUIDED LIBERTY U.S. GOVERNMENT MONEY MARKET
TRUST DURING THE SIX-MONTH REPORTING PERIOD?
We maintained our 35-45 day average maturity target range, which
was consistent with our expectations for stable monetary policy
for most of the period. We added to our term repurchase
agreement position over the period, as this investment offered
incremental yield advantage relative to overnight investments.
We also concentrated our purchases of securities in U.S. government
agencies rather than Treasuries, due to the very expensive nature of the
U.S. Treasury market.
[Graphic]
AS WE MOVE TOWARD THE END OF 1998, WE HAVE RECENTLY EXPERIENCED
TWO EASINGS, OR CUTS IN RATES, BY THE FED. WHAT DO YOU SEE AHEAD
FOR SHORT-TERM RATES?
Looking forward, although such a quick turnaround in monetary
policy is highly unusual and very difficult to have foreseen,
the significant uncertainty regarding the outlook for our own
and other economies warranted the sudden shift. If consumer
confidence continues to slide and employment growth is
restricted, we would expect the Fed to take more easing steps before the
end of the year. In spite of our expectations for a lower Fed Funds
Target Rate, both the short-term Treasury market and the U.S. government
agency market remain at expensive levels.
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM U.S. GOVERNMENT OBLIGATIONS--36.0%
$ 6,500,000 Federal Farm Credit Bank Notes--1.0%
5.500% - 5.600%, 10/1/1998 - 4/1/1999 $ 6,497,607
13,000,000(a) Federal Farm Credit Bank Floating Rate Note--2.0%
5.300%, 11/2/1998 12,998,979
25,900,000 Federal Home Loan Bank Notes--3.9%
5.500% - 5.775%, 10/23/1998 - 7/6/1999 25,893,641
4,700,000(b) Federal Home Loan Bank, Discount Notes--0.7%
5.390%, 11/4/1998 - 11/12/1998 4,673,080
14,000,000(a) Federal Home Loan Bank, Floating Rate Notes--2.1%
4.983% - 5.038%, 10/7/1998-10/8/1998 13,994,308
9,500,000 Federal Home Loan Mortgage Corp. Notes--1.4%
5.544% - 5.605%, 3/12/1999 - 8/13/1999 9,496,195 28,000,000(a)
Federal Home Loan Mortgage Corp., Floating Rate Notes--4.3%
5.389% - 5.467%, 10/21/1998 - 8/18/1999 27,985,011
15,200,000 Federal National Mortgage Association Notes--2.3%
5.360% - 5.650%, 2/19/1999 - 8/9/1999 15,192,767
55,800,000 (b)Federal National Mortgage Association, Discount Notes--8.3%
4.940% - 5.450%, 10/8/1998 - 7/30/1999 54,849,783
49,000,000(a) Federal National Mortgage Association, Floating Rate
Notes--7.4%
5.023% - 5.447%, 10/1/1998 - 11/28/1998 48,987,801
6,000,000 Student Loan Marketing Association Notes--0.9%
5.580% - 5.830%, 10/29/1998 - 3/11/1999 5,999,753 9,000,000(a)
Student Loan Marketing Association, Floating Rate Note--1.4%
5.043%, 10/6/1998 8,999,678
2,000,000 United States Treasury Note--0.3%
5.875%, 1/31/1999 2,002,087
TOTAL SHORT-TERM U.S. GOVERNMENT OBLIGATIONS 237,570,690
(C)REPURCHASE AGREEMENTS--64.0%
30,000,000 ABN AMRO Chicago Corp., 5.720%, dated 9/30/1998,
due 10/1/1998 30,000,000
30,000,000 Bear, Stearns and Co., 5.750%, dated 9/30/1998,
due 10/1/1998 30,000,000
6,500,000 Deutsche Bank Government Securities, Inc., 5.550%,
dated 9/30/1998, due 10/1/1998 6,500,000
20,000,000(d) Goldman Sachs Group, LP, 5.530%, dated 9/21/1998,
due 10/22/1998 20,000,000
</TABLE>
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
$ 10,000,000(d) Goldman Sachs Group, LP, 5.550%, dated 7/14/1998,
due 10/13/1998 $ 10,000,000
15,000,000(d) Greenwich Capital Markets, Inc., 5.540%, dated 9/8/1998,
due 10/13/1998 15,000,000
30,000,000 J.P. Morgan & Co., Inc., 5.750%, dated 9/30/1998,
due 10/1/1998 30,000,000
15,000,000 (d)Lehman Brothers, Inc., 5.540%, dated 9/8/1998,
due 10/13/1998 15,000,000
5,000,000(d) Merrill Lynch, Pierce, Fenner and Smith, 5.560%,
dated 8/11/1998, due 11/9/1998 5,000,000
10,000,000(d) Morgan Stanley Group, Inc., 5.550%, dated 8/11/1998,
due 10/13/1998 10,000,000
15,000,000(d) Morgan Stanley Group, Inc., 5.550%, dated 8/6/1998,
due 10/7/1998 15,000,000
30,000,000 Nationsbanc Montgomery Securities, Inc., 5.800%,
dated 9/30/1998, due 10/1/1998 30,000,000
150,000,000 PaineWebber Group, Inc., 5.700%, dated 9/30/1998,
due 10/1/1998 150,000,000
30,000,000 Prudential Securities, Inc., 5.700%, dated 9/30/1998, due
10/1/1998 30,000,000
10,000,000(d) Warburg Dillon Reed LLC, 5.530%, dated 9/1/1998,
due 10/30/1998 10,000,000
15,000,000 (d)Warburg Dillon Reed LLC, 5.550%, dated 7/7/1998,
due 10/5/1998 15,000,000
TOTAL REPURCHASE AGREEMENTS 421,500,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $ 659,070,690
</TABLE>
(a) Floating variable rate securities with the current rate and next demand
date.
(b) Discount rate at time of purchase.
(c) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in the repurchase agreements are through
participation in joint accounts with other Federated funds.
(d) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days if the creditworthiness of the issuer is
downgraded.
(e) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($658,928,222) at September 30, 1998.
The following acronyms are used throughout this portfolio:
LLC--Limited Liability Corporation
LP --Limited Partnership
(See Notes which are an integral part of the Financial Statements)
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
ASSETS:
INVESTMENTS IN REPURCHASE AGREEMENTS $421,500,000
INVESTMENTS IN SECURITIES 237,570,690
Total investments in securities, at amortized cost and value $659,070,690
Cash 84,532
Income receivable 2,504,927
Receivable for shares sold 394,892
Total assets 662,055,041
LIABILITIES:
PAYABLE FOR SHARES REDEEMED 227,857
INCOME DISTRIBUTION PAYABLE 2,410,190
ACCRUED EXPENSES 488,772
Total liabilities 3,126,819
NET ASSETS for 658,928,222 shares outstanding $658,928,222
NET ASSET VALUE AND OFFERING PRICE PER SHARE:
CLASS A SHARES:
$611,075,649 / 611,075,649 shares outstanding $1.00
CLASS B SHARES:
$47,852,573 / 47,852,573 shares outstanding $1.00
REDEMPTION PROCEEDS PER SHARE:
Class A Shares: $1.00
CLASS B SHARES:
(94.50/100 of $1.00)* $0.95
</TABLE>
* Under certain limited conditions, a "Contingent Deferred Sales Charge" of
up to 5.50%, may be imposed. See "Contingent Deferred Sales Charge" in the
Prospectus.
(See Notes which are an integral part of the Financial Statements)
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
STATEMENT OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $18,028,950 EXPENSES: Investment advisory fee $1,587,800 Administrative
personnel and services fee 242,094 Custodian fees 57,292 Transfer and dividend
disbursing agent fees and expenses 1,080,696 Directors'/Trustees' fees 8,410
Auditing fees 7,585 Legal fees 2,871 Portfolio accounting fees 58,602
Distribution services fee--Class B Shares 114,401 Shareholder services
fee--Class A Shares 764,566 Shareholder services fee--Class B Shares 38,134
Share registration costs 42,302 Printing and postage 54,944 Insurance premiums
1,823 Taxes 4,020 Miscellaneous 12,039 Total expenses 4,077,579 Waivers-- Waiver
of investment advisory fee $ (25,315) Waiver of shareholder services fee--Class
A Shares (560,215) Total waivers (585,530) Net expenses 3,492,049 Net investment
income $14,536,901 </TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED
1998 MARCH 31,
(UNAUDITED) 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 14,536,901 $ 29,156,157
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income
Class A Shares (13,974,834) (28,452,044)
Class B Shares (562,067) (704,113)
Change in net assets resulting from distributions to
shareholders (14,536,901) (29,156,157)
SHARE TRANSACTIONS--
Proceeds from sale of shares 824,003,778 790,819,804
Net asset value of shares issued to shareholders in payment
of distributions declared 10,729,944 26,222,787
Cost of shares redeemed (806,581,799) (873,334,408)
Change in net assets resulting from share transactions 28,151,923 (56,291,817)
Change in net assets 28,151,923 (56,291,817)
NET ASSETS:
Beginning of period 630,776,299 687,068,116
End of period $ 658,928,222 $ 630,776,299
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
FINANCIAL HIGHLIGHTS--CLASS A SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Net investment income 0.02 0.05 0.04 0.05 0.04 0.02
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) (0.05) (0.04) (0.05) (0.04) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 2.31% 4.67% 4.43% 4.89% 3.93% 2.34%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.04%* 1.06% 1.06% 1.10% 1.12% 1.01%
Net investment income 4.57%* 4.57% 4.33% 4.78% 3.83% 2.31%
Expense waiver/reimbursement(b) 0.19%* 0.22% 0.29% 0.20% -- --
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $611,076 $611,630 $658,731 $697,472 $715,527 $805,907
</TABLE>
* Computed on an annualized basis.
(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.
(See Notes which are an integral part of the Financial Statements)
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
FINANCIAL HIGHLIGHTS--CLASS B SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998 YEAR ENDED MARCH 31,
(UNAUDITED) 1998 1997 1996 1995(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.02 0.04 0.04 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net investment income (0.02) (0.04) (0.04) (0.04) (0.01)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 1.83% 3.71% 3.59% 4.04% 1.14%
RATIOS TO AVERAGE NET ASSETS
Expenses 1.97%* 1.98% 1.87% 1.91% 1.95%*
Net investment income 3.68%* 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) $47,853 $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.
(See Notes which are an integral part of the Financial Statements)
LIBERTY U.S. GOVERNMENT MONEY MARKET TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (UNAUDITED)
ORGANIZATION
Liberty U.S. Government Money Market Trust (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as an
open-end management investment company. The Trust offers two classes of
shares: Class A Shares and Class B Shares. The investment objective of
the Trust is stability of principal and current income consistent with
stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies
consistently followed by the Trust in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles.
INVESTMENT VALUATIONS--The Trust uses the amortized cost method to
value its portfolio securities in accordance with Rule 2a-7 under the
Act.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under
repurchase agreement transactions. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value
of each repurchase agreement's collateral to ensure that the value of
collateral at least equals the repurchase price to be paid under the
repurchase agreement transaction.
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 the
guidelines and/or standards reviewed or established by the Board of
Trustees (the "Trustees"). Risks may arise from the potential inability
of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Trust could receive less than the repurchase price on
the sale of collateral securities.
INVESTMENT INCOME, EXPENSES, AND DISTRIBUTIONS--Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended (the
"Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute
to shareholders each year substantially all of its income. Accordingly,
no provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage
in when-issued or delayed delivery transactions. The Trust records when-
issued securities on the trade date and maintains security positions
such that sufficient liquid assets will be available to make payment for
the securities purchased. Securities purchased on a when-issued or
delayed delivery basis are marked to market daily and begin earning
interest on the settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts of assets,
liabilities, expenses and revenues reported in the financial statements.
Actual results could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par
value) for each class of shares.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
SEPTEMBER 30, ENDED
1998 MARCH 31,
CLASS A SHARES (UNAUDITED) 1998
<S> <C> <C>
Shares sold 744,774,806 730,207,814
Shares issued to shareholders in payment of distributions
declared 10,399,377 25,602,143
Shares redeemed (755,728,612) (802,910,654)
Net change resulting from Class A Share transactions (554,429) (47,100,697)
<CAPTION>
SIX MONTHS
ENDED YEAR
SEPTEMBER 30, ENDED
1998 MARCH 31,
CLASS B SHARES (UNAUDITED) 1998
<S> <C> <C>
Shares sold 79,228,972 60,611,990
Shares issued to shareholders in payment of distributions
declared 330,567 620,644
Shares redeemed (50,853,187) (70,423,754)
Net change resulting from Class B Share transactions 28,706,352 (9,191,120)
Net change resulting from share transactions 28,151,923 (56,291,817)
</TABLE>
At September 30, 1998, capital paid-in aggregated $658,928,222.
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Trust's investment
adviser (the "Adviser"), receives for its services an annual investment
advisory fee based on the average daily net assets of the Trust as
follows: 0.50% on the first $500 million, 0.475% on the next
$500 million, 0.45% on the next $500 million, 0.425% on the
$500 million, and 0.40% thereafter.
The Adviser may voluntarily choose to waive any portion of its fee. The
Adviser can modify or terminate this voluntary waiver at any time at its
sole discretion.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with
administrative personnel and services. The fee paid to FServ is based on
the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and $30,000
per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Trust has adopted a Distribution Plan
(the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of
the Plan, the Trust will compensate Federated Securities Corp. ("FSC"),
the principal distributor, from the net assets of the Trust to finance
activities intended to result in the sale of the Trust's Class B Shares.
The Plan provides that the Trust may incur distribution expenses up to
0.75% of the average daily net assets of the Class B Shares annually, to
compensate FSC.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services ("FSS"), the Trust will
pay FSS up to 0.25% of average daily net assets of the Trust for the
period. The fee paid to FSS is used to finance certain services for
shareholders and to maintain shareholder accounts. FSS may voluntarily
choose to waive any portion of its fee. FSS can modify or terminate this
voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ,
through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Trust. The fee
paid to FSSC is based on the size, type, and number of accounts and
transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting
records for which it receives a fee. The fee is based on the level of the
Trust's average daily net assets for the period, plus out-of-pocket
expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
YEAR 2000
Similar to other financial organizations, the Trust could be adversely
affected if the computer systems used by the Trust's service providers
do not properly process and calculate date-related information and data
from and after January 1, 2000. The Trust's Adviser and Administrator
are taking measures that they believe are reasonably designed to address
the Year 2000 issue with respect to computer systems that they use and
to obtain reasonable assurances that comparable steps are being taken by
each of the Trust's other service providers. At this time, however,
there can be no assurance that these steps will be sufficient to avoid
any adverse impact to the Trust.
DIRECTORS
John F. Donahue
Thomas G. Bigley
John T. Conroy, Jr.
William J. Copeland
James E. Dowd, Esq.
Lawrence D. Ellis, M.D.
Edward L. Flaherty, Jr., Esq.
Edward C. Gonzales
Peter E. Madden
John E. Murray, Jr., J.D., S.J.D.
Wesley W. Posvar
Marjorie P. Smuts
OFFICERS
John F. Donahue
Chairman
J. Christopher Donahue
President
Edward C. Gonzales
Executive Vice President
John W. McGonigle
Executive Vice President, Treasurer, and Secretary
Richard B. Fisher
Vice President
Matthew S. Hardin
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by
any bank, and are not insured or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency. Investment in mutual funds involves investment
risk, including possible loss of principal. Although money market funds
seek to maintain a stable net asset value of $1.00 per share, there is no
assurance that they will be able to do so.
This report is authorized for distribution to prospective investors only
when preceded or accompanied by the trust's prospectus which contains
facts concerning its objective and policies, management fees, expenses,
and other information.
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Federated Securities Corp., Distributor
Federated Investors, Inc.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 531485100
Cusip 531485209
8110106 (11/98)
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