- --------------------------------------------------------------------------------
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
INSTITUTIONAL SHARES
PROSPECTUS
The Institutional Shares offered by this prospectus represent
interests in a diversified portfolio of securities of Federated U.S.
Government Securities Fund: 1-3 Years (the "Trust"). The Trust is an
open-end management investment company (a mutual fund).
The investment objective of the Trust is current income. The Trust
invests primarily in U.S. government securities. Institutional Shares
are sold at net asset value.
THE INSTITUTIONAL SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS
OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in Institutional Shares of the Trust. Keep this
prospectus for future reference.
The Trust has also filed a Combined Statement of Additional
Information for Institutional Shares and Institutional Service Shares
dated April 30, 1995, with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Combined Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information
or make inquiries about the Trust, contact the Trust at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF TRUST EXPENSES--
INSTITUTIONAL SHARES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SHARES 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
- ---------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 5
TRUST INFORMATION 5
- ---------------------------------------------------
Management of the Trust 5
Distribution of Institutional Shares 6
Administration of the Trust 6
NET ASSET VALUE 7
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SHARES 7
- ---------------------------------------------------
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Subaccounting Services 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 9
REDEEMING INSTITUTIONAL SHARES 9
- ---------------------------------------------------
Telephone Redemption 9
Written Requests 9
Accounts With Low Balances 10
SHAREHOLDER INFORMATION 10
- ---------------------------------------------------
Voting Rights 10
Massachusetts Partnership Law 10
TAX INFORMATION 11
- ---------------------------------------------------
Federal Income Tax 11
Pennsylvania Corporate and Personal
Property Taxes 11
PERFORMANCE INFORMATION 11
- ---------------------------------------------------
OTHER CLASSES OF SHARES 12
- ---------------------------------------------------
FINANCIAL STATEMENTS 13
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS 21
- ---------------------------------------------------
ADDRESSES 22
- ---------------------------------------------------
</TABLE>
I
SUMMARY OF TRUST EXPENSES--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............ None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable)........................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)................................ None
Exchange Fee...................................................................................... None
<CAPTION>
ANNUAL INSTITUTIONAL SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)................................................................. 0.38%
12b-1 Fee......................................................................................... None
Total Other Expenses.............................................................................. 0.16%
Shareholder Services Fee (after waiver) (2).......................................... 0.00%
Total Institutional Shares Operating Expenses (3)......................................... 0.54%
<FN>
(1) The Management Fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The maximum Shareholder Services Fee is 0.25%.
(3) The Total Institutional Shares Operating Expenses in the table above are
based on expenses expected during the fiscal year ending February 29, 1996.
The Total Institutional Shares Operating Expenses were 0.54% for the fiscal
year ended February 28, 1995, and would have been 0.56% absent the
voluntary waiver of a portion of the management fee.
</TABLE>
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Shares of the
Trust will bear, either directly or indirectly. For more complete descriptions
of the various costs and expenses, see "Investing in Institutional Shares" and
"Trust Information." Wire-transferred redemptions of less than $5,000 may be
subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time period.............................................. $6 $17 $30 $68
</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.
1
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 21.
<TABLE>
<CAPTION>
PERIOD ENDED FEBRUARY 28, OR 29,
------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.46 $10.53 $10.34 $10.12 $ 9.93 $ 9.81 $10.21 $10.42 $10.39 $10.18
- --------------------
INCOME FROM
INVESTMENT
OPERATIONS
- --------------------
Net investment
income 0.52 0.37 0.48 0.67 0.72 0.84 0.82 0.81 0.84 1.06
- --------------------
Net realized and
unrealized gain
(loss) on
investments (0.21) (0.07) 0.19 0.22 0.19 0.12 (0.40) (0.16) 0.03 0.21
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total from
investment
operations 0.31 0.30 0.67 0.89 0.91 0.96 0.42 0.65 0.87 1.27
- --------------------
LESS DISTRIBUTIONS
- --------------------
Distributions from
net investment
income (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.81) (0.84) (1.06)
- --------------------
Distributions from
net realized gain
on investment
transactions 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.05) 0.00 0.00
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total
distributions (0.52) (0.37) (0.48) (0.67) (0.72) (0.84) (0.82) (0.86) (0.84) (1.06)
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END
OF PERIOD $10.25 $10.46 $10.53 $10.34 $10.12 $ 9.93 $ 9.81 $10.21 $10.42 $10.39
- -------------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN (B) 3.14% 2.93% 6.64% 9.07% 10.11% 10.08% 4.23% 6.58% 8.73% 12.99%
- --------------------
RATIOS TO AVERAGE
NET ASSETS
- --------------------
Expenses 0.54% 0.51% 0.49% 0.48% 0.48% 0.48% 0.47% 0.46% 0.45% 0.43%
- --------------------
Net investment
income 5.06% 3.56% 4.63% 6.57% 7.79% 8.42% 8.14% 7.89% 7.97% 10.09%
- --------------------
Expense waiver/
reimbursement
(d) 0.02% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.01% 0.02% 0.02%
- --------------------
SUPPLEMENTAL DATA
- --------------------
Net assets, end of
period (000
omitted) $687,037 $858,556 $1,034,374 $1,171,633 $1,296,579 $1,725,112 $2,236,208 $3,016,355 $4,348,532 $2,005,689
- --------------------
Portfolio turnover 265% 150% 132% 114% 96% 172% 112% 85% 99% 138%
- --------------------
<FN>
(a) Reflects operations for the period from March 15, 1984 (date of initial
public investment) to February 28, 1985.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 3, 1984. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interests 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") have established two classes of shares of the Trust,
known as Institutional Shares and Institutional Service Shares. This prospectus
relates only to Institutional Shares.
Institutional Shares ("Shares") are sold primarily to accounts for which
financial institutions act in a fiduciary or agency capacity, or other accounts
where the financial institution maintains master accounts with an aggregate
investment of at least $400 million in certain funds which are advised or
distributed by affiliates of Federated Investors. Shares are also made available
to financial intermediaries, public, and private organizations. An investment in
the Trust serves as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio of U.S. government securities. A
minimum initial investment of $25,000 over a 90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. While there is no
assurance that the Trust will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus. Unless
otherwise noted, the investment objective and the policies and limitations
described below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing in U.S. government
securities with remaining maturities of 3 1/2 years or less. As a matter of
investment practice which can be changed without shareholder approval, the Trust
will maintain a dollar-weighted average portfolio maturity of 1 to 3 years.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities are limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan
Mortgage Corporation; Federal National Mortgage Association; Government
National Mortgage Association; Student Loan Marketing Association;
Tennessee Valley Au-
3
thority; Export-Import Bank of the United States; Commodity Credit
Corporation; Federal Financing Bank; and National Credit Union
Administration.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so. The
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.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other 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 original seller does not repurchase the securities from
the Trust, the Trust could receive less than the repurchase price on any
sale of such securities.
As a matter of investment practice which can be changed without shareholder
approval, the Trust will not invest more than 15% of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. As a matter of investment
practice, which can be changed without shareholder approval, the Trust may
purchase securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay
more/less than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter in 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.
PORTFOLIO TRANSACTIONS. The Trust conducts portfolio transactions to accomplish
its investment objective as interest rates change, to invest new money obtained
from selling its shares, and to meet redemption requests. The Trust may dispose
of portfolio securities at any time if it appears that selling the securities
will help the Trust achieve its investment objective.
4
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge assets 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.
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. The 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
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, 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 Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956 as
Federated Investors, Inc., develops and manages mutual funds primarily for
the financial industry. Federated Investors' track record of competitive
performance and its disciplined, risk averse investment philosophy serve
approximately 3,500 client institutions nationwide. Through these same
client institutions, individual shareholders also have access to this same
level of investment expertise.
Joseph M. Balestrino has been the Trust's co-portfolio manager since March
1995. Mr. Balestrino joined Federated Investors in 1986 and has been an
Assistant Vice President of the Trust's investment adviser since 1991. Mr.
Balestrino served as an Investment Analyst of the investment
5
adviser from 1989 until 1991, and from 1986 until 1989 he acted as Project
Manager in the Product Development Department. Mr. Balestrino is a Chartered
Financial Analyst and received his M.A. in Urban and Regional Planning from
the University of Pittsburgh.
Susan M. Nason has been the Trust's co-portfolio manager since September
1991. Ms. Nason joined Federated Investors in 1987 and has been a Vice
President of the Trust's investment adviser since 1993. Ms. Nason served as
an Assistant Vice President of the investment adviser from 1990 until 1992,
and from 1987 until 1990 she acted as an investment analyst. Ms. Nason is a
Chartered Financial Analyst and received her M.B.A. in Finance from Carnegie
Mellon University.
DISTRIBUTION OF INSTITUTIONAL SHARES
Federated Securities Corp. is the principal distributor for the Shares. 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.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
-------------------- ------------------------------------
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Trust to obtain certain personal services
for shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.
6
CUSTODIAN. State Street Bank and Trust Company, ("State Street Bank") Boston,
Massachusetts, is custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania is transfer agent for the shares of the Trust and
dividend disbursing agent for the Trust.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Ernst & Young
LLP, Pittsburgh, Pennsylvania 15219.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Institutional Service Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Services Company c/o State Street Bank and
Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated U.S. Government Securities Fund: 1-3 Years--Institutional Shares;
Trust Number (this number can be found on the account statement or by contacting
the Trust); Group Number or Wire Order Number; Nominee or Institution Name; and
ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 1-3 Years--Institutional Shares to Federated
Services Company, c/o State Street Bank and Trust Company, P.O. Box 8602,
Boston, Massachusetts 02266-8602. Orders by mail are considered received after
payment by check is converted by the transfer agent's bank, State Street Bank
and Trust Company, into federal funds. This is generally the next business day
after State Street Bank receives the check.
7
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Trust. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Trust's portfolio securities such that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted by the transfer agent
into federal funds. Dividends are automatically
8
reinvested on payment dates in additional Shares unless cash payments are
requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. If at any time the Trust shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as written requests, should be considered. If
reasonable procedures are not followed by the Trust, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Trust. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust name and class of shares
name, his account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail to Federated Services Company, 500 Victory
Road-2nd Floor, Quincy, Massachusetts, 02171 with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
9
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
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.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Trust, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of its shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign on behalf of the Trust.
10
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
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.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
- the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to such
taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the maximum offering price per share of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The Trust is sold without any sales charge or other similar non-recurring
charges.
11
Total return and yield will be calculated separately for Institutional Shares
and Institutional Service Shares. Because Institutional Service Shares are
subject to 12b-1 fees, the total return and yield for Institutional Shares, for
the same period, will exceed that of Institutional Service Shares.
From time to time, the Trust may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Service
Shares. Institutional Service Shares are sold at net asset value primarily to
retail and private banking customers of financial institutions and are subject
to a minimum initial investment of $25,000.
Institutional Shares and Institutional Service Shares are subject to certain of
the same expenses; however, Institutional Service Shares are distributed under a
12b-1 Plan adopted by the Trust. This, plus other expense differences between
Institutional Shares and Institutional Service Shares, may affect the
performance of each class.
To obtain more information and a prospectus for Institutional Service Shares,
investors may call 1-800-235-4669.
12
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------- ------------
<C> <S> <C>
SHORT-INTERMEDIATE TERM OBLIGATIONS--98.5%
- -------------------------------------------------------------------------------
U.S. TREASURY NOTES--98.5%
-----------------------------------------------------------------
$ 75,000,000 7.875%, 2/15/1996 $ 75,975,750
-----------------------------------------------------------------
35,000,000 7.75%, 3/31/1996 35,448,438
-----------------------------------------------------------------
5,000,000 5.50%, 4/30/1996 4,941,900
-----------------------------------------------------------------
140,000,000 4.25%, 5/15/1996 136,277,400
-----------------------------------------------------------------
25,000,000 5.875%, 5/31/1996 24,791,250
-----------------------------------------------------------------
100,000,000 6.00%, 6/30/1996 99,242,000
-----------------------------------------------------------------
50,000,000 6.125%, 7/31/1996 49,660,000
-----------------------------------------------------------------
25,000,000 6.50%, 9/30/1996 24,935,500
-----------------------------------------------------------------
90,000,000 6.875%, 10/31/1996 90,231,300
-----------------------------------------------------------------
40,000,000 4.75%, 2/15/1997 38,526,000
-----------------------------------------------------------------
15,000,000 6.75%, 5/31/1997 14,975,250
-----------------------------------------------------------------
25,000,000 6.50%, 8/15/1997 24,808,500
-----------------------------------------------------------------
25,000,000 5.625%, 1/31/1998 24,157,750
-----------------------------------------------------------------
30,000,000 5.125%, 2/28/1998 28,562,700
-----------------------------------------------------------------
35,000,000 5.125%, 3/31/1998 33,268,900
----------------------------------------------------------------- ------------
TOTAL SHORT-INTERMEDIATE TERM OBLIGATIONS (IDENTIFIED COST
$699,455,414) 705,802,638
----------------------------------------------------------------- ------------
*REPURCHASE AGREEMENT--1.2%
- -------------------------------------------------------------------------------
8,910,000 J.P. Morgan Securities, Inc., 6.13%, dated 2/28/95, due 3/1/95,
(at amortized cost) 8,910,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $708,365,414) $714,712,638+
----------------------------------------------------------------- ------------
------------
<FN>
* The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio. The investment in the
repurchase agreement was through participation in a joint account with other
Federated Funds.
+ The cost of investments for federal tax purposes amounts to $708,564,219 at
February 28, 1995. The net unrealized appreciation of investments on a
federal tax basis amounts to $6,148,419, which is comprised of $6,156,874
appreciation and $8,455 depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($716,244,825) at February 28, 1995.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
13
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------------------------
Total Investments in securities, at value (identified cost $708,365,414 and tax
cost of $708,564,219) $ 714,712,638
- -----------------------------------------------------------------------------------
Cash 3,153
- -----------------------------------------------------------------------------------
Income receivable 8,807,327
- -----------------------------------------------------------------------------------
Receivable for shares sold 1,798,611
- ----------------------------------------------------------------------------------- -------------
Total assets 725,321,729
- -----------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------------------------
Payable for shares redeemed $7,037,132
- ----------------------------------------------------------------------
Income distribution payable 1,999,951
- ----------------------------------------------------------------------
Accrued expenses 39,821
- ---------------------------------------------------------------------- ----------
Total liabilities 9,076,904
- ----------------------------------------------------------------------------------- -------------
NET ASSETS for 69,863,352 shares outstanding $ 716,244,825
- ----------------------------------------------------------------------------------- -------------
-------------
NET ASSETS CONSISTS OF:
- -----------------------------------------------------------------------------------
Paid in capital $ 841,097,271
- -----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 6,347,224
- -----------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (131,199,670)
- ----------------------------------------------------------------------------------- -------------
Total Net Assets $ 716,244,825
- ----------------------------------------------------------------------------------- -------------
-------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
- -----------------------------------------------------------------------------------
Institutional Shares ($687,036,574 DIVIDED BY 67,014,317 shares
outstanding) $ 10.25
- ----------------------------------------------------------------------------------- -------------
Institutional Service Shares ($29,208,251 DIVIDED BY 2,849,035 shares
outstanding) $ 10.25
- ----------------------------------------------------------------------------------- -------------
-------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
14
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest $42,848,394
- -------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $3,060,247
- -----------------------------------------------------------------------
Administrative personnel and services fees 654,725
- -----------------------------------------------------------------------
Custodian fees 300,042
- -----------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 92,251
- -----------------------------------------------------------------------
Directors/Trustees fees 10,216
- -----------------------------------------------------------------------
Auditing fees 12,713
- -----------------------------------------------------------------------
Legal fees 13,363
- -----------------------------------------------------------------------
Portfolio accounting fees 62,395
- -----------------------------------------------------------------------
Institutional Service Shares--Distribution services fee 80,589
- -----------------------------------------------------------------------
Institutional Service Shares--Shareholder services fee 74,142
- -----------------------------------------------------------------------
Share registration costs 34,012
- -----------------------------------------------------------------------
Printing and postage 18,627
- -----------------------------------------------------------------------
Insurance premiums 16,801
- -----------------------------------------------------------------------
Taxes 141
- -----------------------------------------------------------------------
Miscellaneous 8,533
- ----------------------------------------------------------------------- ----------
Total expenses 4,438,797
- -----------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fee $152,733
- ------------------------------------------------------------
Waiver of distribution services fee 74,142
- ------------------------------------------------------------ --------
Total waivers 226,875
- ----------------------------------------------------------------------- ----------
Net expenses 4,211,922
- ------------------------------------------------------------------------------------- -----------
Net investment income 38,636,472
- ------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments (26,211,391)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 9,714,843
- ------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (16,496,548)
- ------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $22,139,924
- ------------------------------------------------------------------------------------- -----------
-----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
15
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-------------------------------
1995 1994
------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 38,636,472 $ 34,840,056
- ---------------------------------------------------------------------------
Net realized gain/loss on investments ($16,372,726 net loss and $6,224,057
net gain, respectively, as computed for federal tax purposes) (26,211,391) 6,224,057
- ---------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation 9,714,843 (11,798,662)
- --------------------------------------------------------------------------- ------------- --------------
Change in assets resulting from operations 22,139,924 29,265,451
- ---------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income
- ---------------------------------------------------------------------------
Institutional Shares (37,103,608) (33,561,842)
- ---------------------------------------------------------------------------
Institutional Service Shares (1,532,864) (1,278,214)
- --------------------------------------------------------------------------- ------------- --------------
Change in net assets from distributions to shareholders (38,636,472) (34,840,056)
- --------------------------------------------------------------------------- ------------- --------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of Shares 269,660,686 532,829,701
- ---------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 16,766,815 14,063,973
- ---------------------------------------------------------------------------
Cost of Shares redeemed (452,147,512) (749,953,492)
- --------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from share transactions (165,720,011) (203,059,818)
- --------------------------------------------------------------------------- ------------- --------------
Change in net assets (182,216,559) (208,634,423)
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 898,461,384 1,107,095,807
- --------------------------------------------------------------------------- ------------- --------------
End of period $ 716,244,825 $ 898,461,384
- --------------------------------------------------------------------------- ------------- --------------
------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
16
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Securities Fund: 1-3 Years (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company.
The Trust provides two classes of shares: Institutional Shares and Institutional
Service Shares.
Effective April 13, 1995 the Trust changed its name from "Federated Short
Intermediate Government Trust" to "Federated U.S. Government Securities Fund:
1-3 Years".
(2) 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--Short-term securities with remaining maturities of sixty
days or less may be stated at amortized cost, which approximates value. U.S.
government obligations are generally valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent pricing
service.
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 in support of repurchase agreement investments.
Additionally, procedures have been established by the Trust to monitor, on a
daily basis, the market value of each repurchase agreement's underlying
collateral to ensure that the value of collateral at least equals the principal
amount of the repurchase agreement, including accrued interest.
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 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.
17
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
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 taxable income. Accordingly, no
provisions for federal tax are necessary.
At February 28, 1995, the Trust for federal tax purposes, had a capital loss
carryforward of $121,361,005, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Trust of any
liability for federal tax. Additionally, net capital losses of $9,639,860
attributable to security transactions incurred after October 31, 1994 are
treated as arising on March 1, the first day of the Trust's next taxable year.
Pursuant to the Code, such capital loss carryforwards will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION
YEAR EXPIRATION AMOUNT
- -------------- ------------------
<S> <C>
1997 (39,788,098)
1998 (65,200,181)
2003 (16,372,726)
</TABLE>
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) 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.
18
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
----------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
--------------------------- -----------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ----------------------------------- ----------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Shares sold 23,657,172 $ 242,387,271 46,140,706 $ 485,245,229
- -----------------------------------
Shares issued to shareholders in
payment of dividends declared 1,514,470 15,527,541 1,246,292 13,114,141
- -----------------------------------
Shares redeemed (40,237,187) (413,639,011) (63,588,095) (668,935,000)
- ----------------------------------- ----------- -------------- ------------- --------------
Net change resulting from share
transactions (15,065,545) $ (155,724,199) (16,201,097) $ (170,575,630)
- ----------------------------------- ----------- -------------- ------------- --------------
----------- -------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
-------------------------- --------------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 2,652,469 $ 27,273,415 4,528,398 $ 47,584,472
- -----------------------------------------
Shares issued to shareholders in payment
of dividends declared 120,824 1,239,274 90,266 949,832
- -----------------------------------------
Shares redeemed (3,739,382) (38,508,501) (7,712,513) (81,018,492)
- ----------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from share
transactions (966,089) $ (9,995,812) (3,093,849) $ (32,484,188)
- ----------------------------------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Net change resulting from Trust share
transactions (16,031,634) $(165,720,011) (19,294,946) $(203,059,818)
- ----------------------------------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.
The Adviser may voluntarily choose to waive any portion of its fee and/or
reimburse certain operating expenses of the Trust. The Adviser can modify or
terminate this voluntary waiver and/or reimbursement at any time at its sole
discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust
with administrative personnel and services. The FAS fee is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors 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.
19
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
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., the principal distributor,
from the net assets of the Trust to finance activities intended to result in the
sale of the Trust's Institutional Service Shares. The Plan provides that the
Trust may incur distribution expenses up to .25 of 1% of the average daily net
assets of the Institutional Service Shares, annually, to compensate Federated
Securities Corp.
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average net assets of the Trust for the period. This fee is to obtain
certain personal services for shareholders and to maintain the shareholder
accounts.
PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") maintains the
Trust's accounting records. The fee is based on the level of the Trust's average
net assets for the period plus, out-of-pocket expenses.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the
Trust. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- --------------------------------------------------
PURCHASES $2,138,136,131
- -------------------------------------------------- --------------
SALES $1,976,384,862
- -------------------------------------------------- --------------
</TABLE>
20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ---------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS:
(formerly Federated Short-Intermediate Government Trust)
We have audited the accompanying statement of assets and liabilities of
Federated U.S. Government Securities Fund: 1-3 Years (formerly Federated Short
Intermediate Government Trust) including the portfolio of investments, as of
February 28, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights (see page 2 of the prospectus)
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated U.S. Government Securities Fund: 1-3 Years at February 28, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 6, 1995
21
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Federated U.S. Government Securities Fund: 1-3 Years
Institutional Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8602
Boston, Massachusetts 02266-8602
- -------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------
</TABLE>
22
- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 1-3 YEARS
INSTITUTIONAL SHARES
PROSPECTUS
An Open-End, Diversified Management
Investment Company
Prospectus dated April 30, 1995
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
313901100
8032806A-IS (4/95) [RECYCLED PAPER LOGO]
- --------------------------------------------------------------------------------
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares offered by this prospectus represent
interests in a diversified portfolio of securities of Federated U.S.
Government Securities Fund: 1-3 Years (the "Trust"). The Trust is an
open-end management investment company (a mutual fund).
The investment objective of the Trust is current income. The Trust
invests primarily in U.S. government securities. Institutional Service
Shares are sold at net asset value.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT
DEPOSITS OR OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY
ANY BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISK, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know
before you invest in Institutional Service Shares of the Trust. Keep
this prospectus for future reference.
The Trust has also filed a Combined Statement of Additional
Information for Institutional Service Shares and Institutional Shares
dated April 30, 1995, with the Securities and Exchange Commission. The
information contained in the Combined Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Combined Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information
or make inquiries about the Trust, contact the Trust at the address
listed in the back of this prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated April 30, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF TRUST EXPENSES--
INSTITUTIONAL SERVICE SHARES 1
- ---------------------------------------------------
FINANCIAL HIGHLIGHTS--INSTITUTIONAL
SERVICE SHARES 2
- ---------------------------------------------------
GENERAL INFORMATION 3
- ---------------------------------------------------
INVESTMENT INFORMATION 3
- ---------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 5
TRUST INFORMATION 5
- ---------------------------------------------------
Management of the Trust 5
Distribution of Institutional Service
Shares 6
Administration of the Trust 7
NET ASSET VALUE 7
- ---------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE
SHARES 7
- ---------------------------------------------------
Share Purchases 7
Minimum Investment Required 8
What Shares Cost 8
Subaccounting Services 8
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING INSTITUTIONAL SERVICE SHARES 9
- ---------------------------------------------------
Telephone Redemption 9
Written Requests 10
Accounts With Low Balances 10
SHAREHOLDER INFORMATION 11
- ---------------------------------------------------
Voting Rights 11
Massachusetts Partnership Law 11
TAX INFORMATION 11
- ---------------------------------------------------
Federal Income Tax 11
Pennsylvania Corporate and Personal
Property Taxes 12
PERFORMANCE INFORMATION 12
- ---------------------------------------------------
OTHER CLASSES OF SHARES 12
- ---------------------------------------------------
FINANCIAL STATEMENTS 13
- ---------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS 21
- ---------------------------------------------------
ADDRESSES 22
- ---------------------------------------------------
</TABLE>
I
SUMMARY OF TRUST EXPENSES--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............ None
Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption
proceeds, as applicable)........................................................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable)................................ None
Exchange Fee...................................................................................... None
<CAPTION>
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)................................................................. 0.38%
12b-1 Fee (after waiver) (2)...................................................................... 0.02%
Total Other Expenses.............................................................................. 0.39%
Shareholder Services Fee (after waiver) (3).......................................... 0.23%
Total Institutional Service Shares Operating Expenses (4)................................. 0.79%
<FN>
(1) The Management Fee has been reduced to reflect the voluntary waiver of
a portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.40%.
(2) The maximum 12b-1 Fee is 0.25%.
(3) The maximum Shareholder Services Fee is 0.25%.
(4) The Total Institutional Service Shares Operating Expenses in the table
above are based on expenses expected during the fiscal year ending February
29, 1996. The Total Institutional Service Shares Operating Expenses were
0.79% for the fiscal year ended February 28, 1995, and would have been
1.04% absent the voluntary waivers of a portion of the management fee and a
portion of the 12b-1 fee.
</TABLE>
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of Institutional Service Shares of
the Trust will bear, either directly or indirectly. For more complete
descriptions of the various costs and expenses, see "Investing in Institutional
Service Shares" and "Trust Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
Long-term shareholders may pay more than the economic equivalent of the maximum
front-end sales charges permitted under the rules of the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each time period.............................................. $8 $25 $44 $98
</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.
1
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 21.
<TABLE>
<CAPTION>
PERIOD ENDED FEBRUARY 28,
---------------------------
1995 1994 1993(A)
- -------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.46 $10.53 $10.37
- --------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------
Net investment income 0.50 0.35 0.34
- --------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.21) (0.07) 0.16
- -------------------------------------------------- ------- ------- -------
Total from investment operations 0.29 0.28 0.50
- --------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------
Distributions from net investment income (0.50) (0.35) (0.34)
- -------------------------------------------------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $10.25 $10.46 $10.53
- -------------------------------------------------- ------- ------- -------
------- ------- -------
TOTAL RETURN (B) 2.88% 2.68% 4.28%
- --------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------
Expenses 0.79% 0.76% 0.74%(c)
- --------------------------------------------------
Net investment income 4.76% 3.33% 4.14%(c)
- --------------------------------------------------
Expense waiver/reimbursement (d) 0.25% 0.00% 0.00%
- --------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------
Net assets, end of period (000 omitted) $29,208 $39,905 $72,722
- --------------------------------------------------
Portfolio turnover 265% 150% 132%
- --------------------------------------------------
<FN>
(a) Reflects operations for the period May 29, 1992 (date of initial public
investment) to February 28, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 3, 1984. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest 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") have established two classes of shares of the Trust,
known as Institutional Service Shares and Institutional Shares. This prospectus
relates only to Institutional Service Shares.
Institutional Service Shares ("Shares") are designed primarily for retail and
private banking customers of financial institutions as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
U.S. government securities. A minimum initial investment of $25,000 over a
90-day period is required.
Shares are currently sold and redeemed at net asset value without a sales charge
imposed by the Trust.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is current income. While there is no
assurance that the Trust will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus. Unless
otherwise noted, the investment objective and the policies and limitations
described below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing in U.S. government
securities with remaining maturities of 3 1/2 years or less. As a matter of
investment practice which can be changed without shareholder approval, the Trust
will maintain a dollar-weighted average portfolio maturity of 1 to 3 years.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities are limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Farmers Home Administration; Federal Home Loan Banks; Federal Home Loan
Mortgage Corporation; Federal National Mortgage Association; Government
National Mortgage Association; Student Loan Marketing Association;
Tennessee Valley Authority; Export-Import Bank of the United States;
Commodity Credit Corporation; Federal Financing Bank; and National Credit
Union Administration.
3
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so. The
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.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which
banks, broker/ dealers, and other recognized financial institutions sell
U.S. government securities or other 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 original seller does not repurchase the securities from
the Trust, the Trust could receive less than the repurchase price on any
sale of such securities.
As a matter of investment practice which can be changed without shareholder
approval, the Trust will not invest more than 15% of its net assets in
securities which are illiquid, including repurchase agreements providing for
settlement in more than seven days after notice.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. As a matter of investment
practice which can be changed without shareholder approval, the Trust may
purchase securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Trust to miss a price or yield
considered to be advantageous. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. Accordingly, the Trust may pay
more/less than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter in 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.
PORTFOLIO TRANSACTIONS. The Trust conducts portfolio transactions to accomplish
its investment objective as interest rates change, to invest new money obtained
from selling its shares, and to meet redemption requests. The Trust may dispose
of portfolio securities at any time if it appears that selling the securities
will help the Trust achieve its investment objective.
4
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge assets 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.
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. The 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
Management, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. The adviser
has also undertaken to reimburse the Trust for operating expenses in excess
of limitations established by certain states. This does not include
reimbursement to the Trust of any expenses incurred by shareholders who use
the transfer agent's subaccounting facilities.
ADVISER'S BACKGROUND. Federated Management, 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 Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956 as
Federated Investors, Inc., develops and manages mutual funds primarily for
the financial industry. Federated Investors' track record of competitive
performance and its disciplined, risk averse investment philosophy serve
approximately 3,500 client institutions nationwide. Through these same
client institutions, individual shareholders also have access to this same
level of investment expertise.
Joseph M. Balestrino has been the Trust's co-portfolio manager since March,
1995. Mr. Balestrino joined Federated Investors in 1986 and has been an
Assistant Vice President of the Trust's investment adviser since 1991. Mr.
Balestrino served as an Investment Analyst of the investment
5
adviser from 1989 until 1991, and from 1986 until 1989 he acted as Project
Manager in the Product Development Department. Mr. Balestrino is a Chartered
Financial Analyst and received his M.A. in Urban and Regional Planning from
the University of Pittsburgh.
Susan M. Nason has been the Trust's co-portfolio manager since September
1991. Ms. Nason joined Federated Investors in 1987 and has been a Vice
President of the Trust's investment adviser since 1993. Ms. Nason served as
an Assistant Vice President of the investment adviser from 1990 until 1992,
and from 1987 until 1990 she acted as an investment analyst. Ms. Nason is a
Chartered Financial Analyst and received her M.B.A. in Finance from Carnegie
Mellon University.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for the Shares. It is a
Pennsylvania corporation organized on November 14, 1969, and is the principal
distributor for a number of investment companies. Federated Securities Corp. is
a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Trust may pay to the distributor an amount, computed at an annual rate of
0.25 of 1% of the average daily net asset value of the Trust, to finance any
activity which is principally intended to result in the sale of Shares subject
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 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 amount or may earn a profit from future payments made by the Trust
under the Distribution Plan.
In addition, the Trust has adopted a Shareholder Services Plan (the "Services
Plan") under which it may make payments up to 0.25 of 1% of the average daily
net asset value of the Trust to obtain certain personal services for
shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the services.
6
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below.
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET ASSETS
ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
------------------ ------------------------------------
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Trust and
dividend disbursing agent for the Trust.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Ernst & Young
LLP, Pittsburgh, Pennsylvania 15219.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust's net asset value per share fluctuates. The net asset value for Shares
is determined by adding the interest of the Shares in the market value of all
securities and other assets of the Trust, subtracting the interest of the Shares
in the liabilities of the Trust and those attributable to Shares, and dividing
the remainder by the total number of Shares outstanding. The net asset value for
Institutional Shares may exceed that of Institutional Service Shares due to the
variance in daily net income realized by each class. Such variance will reflect
only accrued net income to which the shareholders of a particular class are
entitled.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
7
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish an account will be taken over the telephone. The
Trust reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Trust before 4:00
p.m. (Eastern time) to place an order. The order is considered received
immediately. Payment by federal wire funds must be received before 3:00 p.m.
(Eastern time) on the next business day following the order. Federal funds
should be wired as follows: Federated Services Company, c/o State Street Bank
and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For Credit to:
Federated U.S. Government Securities Fund: 1-3 Years--Institutional Service
Shares; Trust Number (this number can be found on the account statement or by
contacting the Trust); Group Number or Wire Order Number; Nominee or Institution
Name; and ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to Federated
U.S. Government Securities Fund: 1-3 Years--Institutional Service Shares to
Federated Services Company, c/o State Street Bank and Trust Company, P.O. Box
8602, Boston, Massachusetts 02266-8602. Orders by mail are considered received
after payment by check is converted by the transfer agent's bank, State Street
Bank and Trust Company, into federal funds. This is generally the next business
day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. However, an account may be
opened with a smaller amount as long as the $25,000 minimum is reached within 90
days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Trust. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on (i) days on which there are not sufficient changes in the
value of the Trust's portfolio securities such that its net asset value might be
materially affected; (ii) days during which no Shares are tendered for
redemption and no orders to purchase Shares are received; and (iii) the
following holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge
8
fees for other services provided which may be related to the ownership of
Shares. This prospectus should, therefore, be read together with any agreement
between the customer and the institution with regard to the services provided,
the fees charged for those services, and any restrictions and limitations
imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are declared just prior
to determining net asset value. If an order for Shares is placed on the
preceding business day, Shares purchased by wire begin earning dividends on the
business day wire payment is received by State Street Bank. If the order for
Shares and payment by wire are received on the same day, Shares begin earning
dividends on the next business day. Shares purchased by check begin earning
dividends on the business day after the check is converted by the transfer agent
into federal funds. Dividends are automatically reinvested on payment dates in
additional Shares unless cash payments are requested by contacting the Trust.
CAPITAL GAINS
Capital gains realized by the Trust, if any, will be distributed at least once
every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Trust before 4:00 p.m.
(Eastern time). Telephone redemption instructions may be recorded. All proceeds
will normally be wire transferred the following business day, but in no event
more than seven days, to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. If at any time the Trust shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as written
9
requests, should be considered. If reasonable procedures are not followed by the
Trust, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Trust. Call the
Trust for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Trust name and class of shares
name, his account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail to Federated Services Company, 500 Victory
Road-2nd Floor, Quincy, Massachusetts, 02171 with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000. This
requirement does not apply, however, if the balance falls below $25,000 because
of changes in the Trust's net asset value.
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.
10
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's operation and for the election of
Trustees under certain circumstances. As of April 7, 1995, Charles Schwab & Co.
Inc., owned 1,084,994 shares (33.48%) of voting securities of the Institutional
Service Shares of the Trust, and, therefore, may, for certain purposes, be
deemed to control the Trust and be able to affect the outcome of certain matters
presented for a vote of shareholders.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect the
shareholders of the Trust, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of its shareholders for such
acts or obligations of the Trust. These documents require notice of this
disclaimer to be given in each agreement, obligation, or instrument that the
Trust or its Trustees enter into or sign on behalf of the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
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.
11
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
- the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to such
taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Trust advertises its total return and yield for Shares.
Total return represents the change, over a specified period of time, in the
value of an investment in Shares of the Trust after reinvesting all income and
capital gain distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The yield of Shares of the Trust is calculated by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by Shares over a thirty-day period by the maximum offering price per share of
Shares on the last day of the period. This number is then annualized using
semi-annual compounding. The yield does not necessarily reflect income actually
earned by Shares and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The Trust is sold without any sales charge.
Total return and yield will be calculated separately for Institutional Service
Shares and Institutional Shares. Because Institutional Service Shares are
subject to 12b-1 fees, the total return and yield for Institutional Shares, for
the same period, will exceed that of Institutional Service Shares.
From time to time, the Trust may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
The Trust also offers another class of shares called Institutional Shares.
Institutional Shares are sold at net asset value primarily to accounts for which
financial institutions act in a fiduciary or agency capacity and are subject to
a minimum initial investment of $25,000.
Institutional Service Shares and Institutional Shares are subject to certain of
the same expenses; however, Institutional Shares are not distributed under a
12b-1 Plan. This, plus other expense differences between Institutional Service
Shares and Institutional Shares, may affect the performance of each class.
To obtain more information and a prospectus for Institutional Shares, investors
may call 1-800-235-4669.
12
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ------------------------------------------------------------ ------------
<C> <S> <C>
SHORT-INTERMEDIATE TERM OBLIGATIONS--98.5%
- --------------------------------------------------------------------------
U.S. TREASURY NOTES--98.5%
------------------------------------------------------------
$ 75,000,000 7.875%, 2/15/1996 $ 75,975,750
------------------------------------------------------------
35,000,000 7.75%, 3/31/1996 35,448,438
------------------------------------------------------------
5,000,000 5.50%, 4/30/1996 4,941,900
------------------------------------------------------------
140,000,000 4.25%, 5/15/1996 136,277,400
------------------------------------------------------------
25,000,000 5.875%, 5/31/1996 24,791,250
------------------------------------------------------------
100,000,000 6.00%, 6/30/1996 99,242,000
------------------------------------------------------------
50,000,000 6.125%, 7/31/1996 49,660,000
------------------------------------------------------------
25,000,000 6.50%, 9/30/1996 24,935,500
------------------------------------------------------------
90,000,000 6.875%, 10/31/1996 90,231,300
------------------------------------------------------------
40,000,000 4.75%, 2/15/1997 38,526,000
------------------------------------------------------------
15,000,000 6.75%, 5/31/1997 14,975,250
------------------------------------------------------------
25,000,000 6.50%, 8/15/1997 24,808,500
------------------------------------------------------------
25,000,000 5.625%, 1/31/1998 24,157,750
------------------------------------------------------------
30,000,000 5.125%, 2/28/1998 28,562,700
------------------------------------------------------------
35,000,000 5.125%, 3/31/1998 33,268,900
------------------------------------------------------------ ------------
TOTAL SHORT-INTERMEDIATE TERM OBLIGATIONS (IDENTIFIED COST
$699,455,414) 705,802,638
------------------------------------------------------------ ------------
*REPURCHASE AGREEMENT--1.2%
- --------------------------------------------------------------------------
8,910,000 J.P. Morgan Securities, Inc. 6.13%, dated 2/28/95, due
3/1/95,
(at amortized cost) 8,910,000
------------------------------------------------------------ ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $708,365,414) $714,712,638+
------------------------------------------------------------ ------------
<FN>
* The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio. The investment in the
repurchase agreement was through participation in a joint account with other
Federated Funds.
+ The cost of investments for federal tax purposes amounts to $708,564,219 at
February 28, 1995. The net unrealized appreciation of investments on a
federal tax basis amounts to $6,148,419, which is comprised of $6,156,874
appreciation and $8,455 depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($716,244,825) at February 28, 1995.
</TABLE>
(See Notes which are an integral part of the Financial Statements)
13
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- --------------------------------------------------------------------------------
Total Investments in securities, at value (identified cost $708,365,414 and tax
cost $708,564,219) $ 714,712,638
- --------------------------------------------------------------------------------
Cash 3,153
- --------------------------------------------------------------------------------
Income receivable 8,807,327
- --------------------------------------------------------------------------------
Receivable for shares sold 1,798,611
- -------------------------------------------------------------------------------- -------------
Total assets 725,321,729
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Payable for shares redeemed $7,037,132
- ----------------------------------------------------------------------
Income distribution payable 1,999,951
- ----------------------------------------------------------------------
Accrued expenses 39,821
- ---------------------------------------------------------------------- ----------
</TABLE>
<TABLE>
<S> <C>
Total liabilities 9,076,904
- -------------------------------------------------------------------------------- -------------
NET ASSETS for 69,863,352 shares outstanding $ 716,244,825
- -------------------------------------------------------------------------------- -------------
-------------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------------
Paid in capital $ 841,097,271
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 6,347,224
- --------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments (131,199,670)
- -------------------------------------------------------------------------------- -------------
Total Net Assets $ 716,244,825
- -------------------------------------------------------------------------------- -------------
-------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
- --------------------------------------------------------------------------------
Institutional Shares ($687,036,574 DIVIDED BY 67,014,317 shares outstanding) $ 10.25
- -------------------------------------------------------------------------------- -------------
Institutional Service Shares ($29,208,251 DIVIDED BY 2,849,035 shares
outstanding) $ 10.25
- -------------------------------------------------------------------------------- -------------
-------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
14
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest $42,848,394
- -------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $3,060,247
- -----------------------------------------------------------------------
Administrative personnel and services fees 654,725
- -----------------------------------------------------------------------
Custodian fees 300,042
- -----------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 92,251
- -----------------------------------------------------------------------
Directors/Trustees fees 10,216
- -----------------------------------------------------------------------
Auditing fees 12,713
- -----------------------------------------------------------------------
Legal fees 13,363
- -----------------------------------------------------------------------
Portfolio accounting fees 62,395
- -----------------------------------------------------------------------
Institutional Service Shares--Distribution services fee 80,589
- -----------------------------------------------------------------------
Institutional Service Shares--Shareholder services fee 74,142
- -----------------------------------------------------------------------
Share registration costs 34,012
- -----------------------------------------------------------------------
Printing and postage 18,627
- -----------------------------------------------------------------------
Insurance premiums 16,801
- -----------------------------------------------------------------------
Taxes 141
- -----------------------------------------------------------------------
Miscellaneous 8,533
- ----------------------------------------------------------------------- ----------
Total expenses 4,438,797
- -----------------------------------------------------------------------
Deduct--
- ------------------------------------------------------------
Waiver of investment advisory fee $152,733
- ------------------------------------------------------------
Waiver of distribution services fee 74,142
- ------------------------------------------------------------ --------
Total waivers 226,875
- ----------------------------------------------------------------------- ----------
Net expenses 4,211,922
- ------------------------------------------------------------------------------------- -----------
Net investment income 38,636,472
- ------------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------
Net realized gain (loss) on investments (26,211,391)
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments 9,714,843
- ------------------------------------------------------------------------------------- -----------
Net realized and unrealized gain (loss) on investments (16,496,548)
- ------------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $22,139,924
- ------------------------------------------------------------------------------------- -----------
-----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
15
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-------------------------------
1995 1994
------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 38,636,472 $ 34,840,056
- ---------------------------------------------------------------------------
Net realized gain/loss on investments $16,372,726 net loss and $6,224,057
net gain, respectively, as computed (for federal tax purposes) (26,211,391) 6,224,057
- ---------------------------------------------------------------------------
Net change in unrealized appreciation/depreciation 9,714,843 (11,798,662)
- --------------------------------------------------------------------------- ------------- --------------
Change in assets resulting from operations 22,139,924 29,265,451
- ---------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income
- ---------------------------------------------------------------------------
Institutional Shares (37,103,608) (33,561,842)
- ---------------------------------------------------------------------------
Institutional Service Shares (1,532,864) (1,278,214)
- --------------------------------------------------------------------------- ------------- --------------
Change in net assets from distributions to shareholders (38,636,472) (34,840,056)
- --------------------------------------------------------------------------- ------------- --------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of Shares 269,660,686 532,829,701
- ---------------------------------------------------------------------------
Net asset value of Shares issued to shareholders in payment of
distributions declared 16,766,815 14,063,973
- ---------------------------------------------------------------------------
Cost of Shares redeemed (452,147,512) (749,953,492)
- --------------------------------------------------------------------------- ------------- --------------
Change in net assets resulting from share transactions (165,720,011) (203,059,818)
- --------------------------------------------------------------------------- ------------- --------------
Change in net assets (182,216,559) (208,634,423)
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period 898,461,384 1,107,095,807
- --------------------------------------------------------------------------- ------------- --------------
End of period $ 716,244,825 $ 898,461,384
- --------------------------------------------------------------------------- ------------- --------------
------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
16
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated U.S. Government Securities Fund: 1-3 Years (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company.
The Trust provides two classes of shares: Institutional Shares and Institutional
Service Shares.
Effective April 13, 1995 the Trust changed its name from "Federated Short
Intermediate Government Trust" to "Federated U.S. Government Securities Fund:
1-3 Years".
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Short-term securities with remaining maturities of sixty
days or less may be stated at amortized cost, which approximates value. U.S.
government obligations are generally valued at the mean between the
over-the-counter bid and asked prices as furnished by an independent pricing
service.
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 in support of repurchase agreement investments.
Additionally, procedures have been established by the Trust to monitor, on a
daily basis, the market value of each repurchase agreement's underlying
collateral to ensure that the value of collateral at least equals the principal
amount of the repurchase agreement, including accrued interest.
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 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.
17
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
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 taxable income. Accordingly, no
provisions for federal tax are necessary.
At February 28, 1995, the Trust for federal tax purposes, had a capital loss
carryforward of $121,361,005, which will reduce the Trust's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of distributions to
shareholders which would otherwise be necessary to relieve the Trust of any
liability for federal tax. Additionally, net capital losses of $9,639,860
attributable to security transactions incurred after October 31, 1994 are
treated as arising on March 1, the first day of the Trust's next taxable year.
Pursuant to the Code, such capital loss carryforwards will expire as
follows:
<TABLE>
<CAPTION>
EXPIRATION
YEAR EXPIRATION AMOUNT
- -------------- ------------------
<S> <C>
1997 (39,788,098)
1998 (65,200,181)
2003 (16,372,726)
</TABLE>
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.
OTHER--Investment transactions are accounted for on the trade date.
(3) 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.
18
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
--------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
-------------------------- ----------------------------
INSTITUTIONAL SHARES SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold 23,657,172 $ 242,387,271 46,140,706 $ 485,245,229
- ------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 1,514,470 15,527,541 1,246,292 13,114,141
- ------------------------------------------------------------------------
Shares redeemed (40,237,187) (413,639,011) (63,588,095) (668,935,000)
- ------------------------------------------------------------------------ ----------- ------------- ------------- -------------
Net change resulting from share transactions (15,065,545) $(155,724,199) (16,201,097) $(170,575,630)
- ------------------------------------------------------------------------ ----------- ------------- ------------- -------------
----------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
------------------------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
-------------------------- --------------------------
INSTITUTIONAL SERVICE SHARES SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 2,652,469 $ 27,273,415 4,528,398 $ 47,584,472
- --------------------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 120,824 1,239,274 90,266 949,832
- --------------------------------------------------------------------------
Shares redeemed (3,739,382) (38,508,501) (7,712,513) (81,018,492)
- -------------------------------------------------------------------------- ----------- ------------- ----------- -------------
Net change resulting from share transactions (966,089) $ (9,995,812) (3,093,849) $ (32,484,188)
- -------------------------------------------------------------------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Net change resulting from Trust share transactions (16,031,634) $(165,720,011) (19,294,946) $(203,059,818)
- -------------------------------------------------------------------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Trust's investment adviser,
(the "Adviser"), receives for its services an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets.
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 Administrative Services ("FAS") provides the Trust
with administrative personnel and services. The FAS fee is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors 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.
19
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS
(FORMERLY FEDERATED SHORT-INTERMEDIATE GOVERNMENT TRUST)
- --------------------------------------------------------------------------------
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, the principal distributor, from
the net assets of the Trust to finance activities intended to result in the sale
of the Trust's Institutional Service Shares. The Plan provides that the Trust
may incur distribution expenses up to .25 of 1% of the average daily net assets
of the Institutional Service Shares, annually, to compensate Federated
Securities Corp.
The distributor may voluntarily choose to waive any portion of its fee. The
distributor can modify or terminate this voluntary waiver at any time at its
sole discretion.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to .25 of
1% of average net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and to maintain the shareholder
accounts.
PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") maintains the
Trust's accounting records. The fee is based on the level of the Trust's average
net assets for the period plus, out-of-pocket expenses.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--Federated Services
Company ("FServ") serves as transfer and dividend disbursing agent for the
Trust. The FServ fee is based on the size, type, and number of accounts and
transactions made by shareholders.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees or Directors of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------
PURCHASES $2,138,136,131
- ------------------------------------------------------------------------------------------------------------------ --------------
SALES $1,976,384,862
- ------------------------------------------------------------------------------------------------------------------ --------------
</TABLE>
20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- ---------------------------------------------------------
To the Trustees and Shareholders of
FEDERATED U.S. GOVERNMENT SECURITIES FUND: 1-3 YEARS:
(formerly Federated Short Intermediate Government Trust)
We have audited the accompanying statement of assets and liabilities of
Federated U.S. Government Securities Fund: 1-3 Years (formerly Federated Short
Intermediate Government Trust) including the portfolio of investments, as of
February 28, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights (see page 2 of the prospectus)
for each of the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Federated U.S. Government Securities Fund: 1-3 Years (formerly Federated Short
Intermediate Government Trust) at February 28, 1995, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the periods indicated therein, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
April 6, 1995
21
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Federated U.S. Government Securities Fund: 1-3 Years
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 8602
Boston, Massachusetts 02266-8602
- -------------------------------------------------------------------------------------------
Transfer Agent, and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- -------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- -------------------------------------------------------------------------------------------
</TABLE>
22
- --------------------------------------------------------------------------------
FEDERATED U.S.
GOVERNMENT SECURITIES
FUND: 1-3 YEARS
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
An Open-End, Diversified Management
Investment Company
Prospectus dated April 30, 1995
[LOGO] FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
313901209
8032806A-SS (4/95) [RECYCLED PAPER LOGO]
Federated U.S. Government Securities Fund: 1 - 3 Years
(formerly Federated Short-Intermediate Government Trust)
Institutional Shares
Institutional Service Shares
Combined Statement of Additional Information
The Institutional Shares and Institutional Service Shares
represent interests in a diversified portfolio of securities of
Federated U.S. Government Securities Fund: 1 - 3 Years (the
"Trust"). This Combined Statement of Additional Information should
be read with the respective prospectuses for Institutional Shares
and Institutional Service Shares dated April 30, 1995. This
Statement is not a prospectus itself. To receive a copy of either
prospectus, write or call the Trust.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About
the Trust 1
Investment Objective and
Policies 1
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 1
Portfolio Turnover 1
Investment Limitations 1
Federated U. S. Government
Securities Fund: 1 - 3
Years Management 2
The Funds 6
Trust Ownership 6
Trustees Compensation 6
Trustee Liability 7
Investment Advisory
Services 7
Adviser to the Trust 7
Advisory Fees 7
Other Advisory Services 8
Administrative Services 8
Transfer Agent and Dividend
Disbursing Agent 8
Brokerage Transactions 8
Purchasing Shares 9
Distribution and
Shareholder Services
Plans 9
Conversion to Federal
Funds 9
Determining Net Asset Value 9
Determining Market Value
of Securities 9
Redeeming Shares 10
Redemption in Kind 10
Tax Status 10
The Trust's Tax Status 10
Shareholders' Tax Status 10
Total Return 10
Yield 11
Performance Comparisons 11
Duration 12
General Information About the Trust
Federated U.S. Government Securities Fund: 1 - 3 Years was established
as a Massachusetts business trust under a Declaration of Trust dated
January 3, 1984. On April 13, 1995 the name of the Trust was changed
from Federated Short-Intermediate Government Trust to Federated U.S.
Government Securities Fund: 1 - 3 Years.
Shares of the Trust are offered in two classes, known as Institutional
Shares and Institutional Service Shares (individually and collectively
referred to as "Shares," as the context may require). This Combined
Statement of additional information relates to the above mentioned
Shares of the Trust.
Investment Objective and Policies
The Trust's investment objective is current income.
Types of Investments
The Trust invests only in U.S. government securities with remaining
maturities of three and one-half (3 1/2) years or less. This investment
policy and the objective stated above cannot be changed without approval
of shareholders. As a matter of investment practice, which can be
changed without shareholder approval, the Trust will invest in U.S.
government securities with remaining maturities of 3 years or less.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Trust sufficient to make payment for the securities to be
purchased are segregated on the Trust's records at the trade date. These
assets are marked to market daily and are maintained until the
transaction has been settled. 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 requires its custodian to take possession of the securities
subject to repurchase agreements, and these securities are marked to
market daily. To the extent that the original seller does not repurchase
the securities from the Trust, the Trust could receive less than the
repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Trust might be delayed pending
court action. The Trust believes that under the regular procedures
normally in effect for custody of the Trust's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Trust and allow retention or disposition of
such securities. The Trust will only enter into repurchase agreements
with banks and other recognized financial institutions such as
broker/dealers which are deemed by the Trust's adviser to be
creditworthy pursuant to guidelines established by the Trustees.
Portfolio Turnover
The Trust will not attempt to set or meet a portfolio turnover rate
since any turnover would be incidental to transactions undertaken in an
attempt to achieve the Trust's investment objective. During the fiscal
years ended February 28, 1995, and February 28, 1994, the portfolio
turnover rates were 265%, and 150%, respectively.
Investment Limitations
The Trust will not change any of the investment limitations described
below without approval of shareholders.
Selling Short and Buying on Margin
The Trust will not sell any securities short or purchase any
securities on margin but may obtain such short-term credits as may
be necessary for clearance of purchases and sales of securities.
Borrowing Money
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not
in excess of 5% of the value of its total assets or in an amount
up to one-third of the value of its total assets, including the
amount borrowed, in order to meet redemption requests without
immediately selling portfolio securities. 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 would be inconvenient
or disadvantageous.
Interest paid on borrowed funds will not be available for
investment. The Trust will liquidate any such borrowings as soon
as possible and may not purchase any portfolio securities while
the borrowings are outstanding.
Pledging Assets
The Trust will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In those cases, it may
mortgage, pledge, or hypothecate assets having a market value not
exceeding 10% of the value of total assets at the time of the
borrowing.
Lending Cash or Securities
The Trust will not lend any of its assets, except that it may
purchase or hold U.S. government securities, including repurchase
agreements, permitted by its investment objective and policies.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
The Trust did not borrow money or pledge 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 in the coming fiscal year.
As a matter of operating policy, the Trust will not purchase any
securities while borrowings in excess of 5% of its total assets are
outstanding.
Federated U. S. Government Securities Fund: 1 - 3 Years Management
Officers and Trustees are listed with their addresses, present
positions with Federated U. S. Government Securities Fund: 1 - 3
Years, 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.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
D
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp. and Federated
Administrative Services.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder Services; President or Vice President of the
Funds; Director, Trustee, or Managing General Partner of some of the
Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
* This Trustee is deemed to
be an "interested person" as defined in the Investment Company
Act of 1940, as amended.
@ Member of the Executive
Committee. The Executive Committee of the Board of Trustees
handles the responsibilities of the Board of Trustees between
meetings of the Board.
The Funds
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust; Automated
Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones
& Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange
Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated U.S. Government Bond Fund; Federated U.S. Government
Securities Fund: 1-3 Years; First Priority Funds; Fixed Income
Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund
for U.S. Government Securities, Inc.; Government Income Securities,
Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.;
Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money
Market Trust; Liberty Term Trust, Inc. - 1999; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; The Medalist Funds; Money
Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal
Trust; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; World Investment
Series, Inc.
Trust Ownership
Officers and Trustees own less than 1% of the Trust's outstanding
shares.
As of April 7, 1995, the following shareholders of record owned 5% or
more of the outstanding Institutional Service Shares of the Trust:
Charles Schwab and Company, Inc., San Francisco, California acting in
various capacities for numerous accounts, owned approximately 1,084,994
shares (33.48%); Hauser Chemical Research, Inc., Boulder, Colorado,
owned approximately 276,851 shares (8.54%); and First American, Trustee
for Richland Place, Inc., Nashville, Tennessee, owned approximately
210,942 shares (6.51%); Industricorp and Trust Co Inc., Minneapolis,
Minnesota, owned approximately 264,740 shares (8.17%); Dai-Ichi Kangyo
Bank of California, Los Angeles, California, owned approximately 236,955
shares (7.31%); Sanbarco, Santa Barbara Bank & Trust, Santa Barbara,
California, owned approximately 163,204 shares (5.04%).
As of April 7, 1995, the following shareholder of record owned 5% or
more of the outstanding Institutional Shares of the Trust: NBD Bank, NA
as Trustee for K-Mart Corporation Employee Savings Plan, Detroit,
Michigan, owned approximately 5,611,857 shares (8.34%);The Northern
Trust Company as Trustee for the Libbey Owens Ford Savings Trust,
Chicago, Illinois, owned approximately 5,280,224 shares (7.84%); ACO,
Integra Trust Services, Pittsburgh , Pennsylvania, owned approximately
4,487,531 shares (6.67%).
Trustees Compensation
<TABLE>
<CAPTION>
NAME, POSITION WITH AGGREGATE COMPENSATION FROM TOTAL COMPENSATION PAID FROM FUND
FUND TRUST*# COMPLEX+
<S> <C> <C>
Thomas G. Bigley $0 $3,632.00 for the Trust and
50 other investment companies in the
Fund Complex
John T. Conroy, Jr. $1,987.00 $17,311.00 for the Trust and
65 other investment companies in the
Fund Complex
William J. Copeland $1,987.00 $17,311.00 for the Trust and
65 other investment companies in the
Fund Complex
NAME, POSITION WITH AGGREGATE COMPENSATION FROM TOTAL COMPENSATION PAID FROM FUND
FUND TRUST*# COMPLEX+
James E. Dowd $1,987.00 $17,311.00 for the Trust and
65 other investment companies in the
Fund Complex
Lawrence D. Ellis, $1,804.00 $15,695.00 for the Trust and
M.D. 65 other investment companies in the
Fund Complex
Edward L. Flaherty, $1,987.00 $17,311.00 for the Trust and
Jr. 65 other investment companies in the
Fund Complex
Peter E. Madden $1,537.00 $13,361.00 for the Trust and
65 other investment companies in the
Fund Complex
Gregor F. Meyer $1,804.00 $15,695.00 for the Trust and
65 other investment companies in the
Fund Complex
John E. Murray, Jr. $ -0- $0 for the Trust and
69 other investment companies in the
Fund Complex
Wesley W. Posvar $1,804.00 $15,695.00 for the Trust and
65 other investment companies in the
Fund Complex
Marjorie P. Smuts $1,804.00 $15,695.00 for the Trust and
65 other investment companies in the
Fund Complex
</TABLE>
*Information is furnished for the fiscal year ended January 31, 1995.
#The aggregate compensation is provided for the Trust which is comprised
of one portfolio.
+The information is provided for the last calendar year.
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees will not be
liable for errors of judgment or mistakes of fact or law. However, they
are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Adviser to the Trust
The Trust's investment adviser is Federated Management. It is a
subsidiary of Federated Investors. All of 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 of the
Trust 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 Management receives an annual
investment advisory fee as described in the prospectus. During the
fiscal years ended February 28, 1995, 1994, and 1993, the Trust's
adviser earned $3,060,247, $3,924,302, and $4,408,159, respectively.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Trust's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the remaining
average net assets, the adviser will reimburse the Trust for its
expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Other Advisory Services
Federated Research Corp. receives fees from certain depository
institutions for providing consulting and portfolio advisory services
relating to each institution's program of asset management. Federated
Research Corp. may advise such clients to purchase or redeem shares of
investment companies, such as the Trust, which are managed, for a fee,
by Federated Research Corp. or other affiliates of Federated Investors,
such as the adviser, and may advise such clients to purchase and sell
securities in the direct markets. Further, Federated Research Corp., and
other affiliates of adviser, may, from time to time, provide certain
consulting services and equipment to depository institutions in order to
facilitate the purchase of shares of funds offered by Federated
Securities Corp.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust for a fee
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Trust's administrator. For the fiscal year ended February
28, 1995, Federated Administrative Services earned $ 654,725. For the
fiscal years ended February 28, 1994, and 1993, Federated Administrative
Services, Inc., earned $629,337 and $542,061, respectively. Dr. Henry
J. Gailliot, an officer of Federated Management, the Adviser to the
Trust, holds approximately 20%, of the outstanding common stock and
serves as a director of Commercial Data Services, Inc., a company which
provides computer processing services to Federated Administrative
Services, Inc.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company serves as transfer agent and dividend
disbursing agent for the Trust. The fee paid to the transfer agent is
based upon the size, type and number of accounts and transactions made
by shareholders.
Federated Services Company also maintains the Trust's accounting
records. 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.
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 review by the
Board of 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:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of
the brokerage and research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
Purchasing Shares
Shares are sold at their net asset value without a sales charge on days
the New York Stock Exchange is open for business. The procedure for
purchasing Shares is explained in the respective prospectus under
"Investing in Institutional Shares" or "Investing in Institutional
Service Shares."
Distribution and Shareholder Services Plans
The Trust has adopted a Distribution Plan with respect to the
Institutional Service Shares only. In addition, the Trust has adopted a
Shareholder Services Plan with respect to both classes of shares. These
arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services to stimulate
distribution activities and to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office
space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses.
With respect to the Institutional Service Shares class of the Trust, by
adopting the Distribution Plan, the Board of Trustees expects that the
Trust will be able to achieve a more predictable flow of cash for
investment purposes and to meet redemptions. This will facilitate more
efficient portfolio management and assist the Trust in pursuing its
investment objectives. By identifying potential investors whose needs
are served by the Trust'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 period ending February 28, 1995, 1994 and 1993, payments
in the amount of $ 80,589, $96,057 and $81,184, respectively, were made
pursuant to the Distribution Plan (Institutional Service Shares only),
all of which was paid to financial institutions, of which $74,142, $0,
and $0, respectively, were waived. In addition, for this period,
payments in the amount of $74,142 were made pursuant to the Shareholder
Services Plan.
Conversion to Federal Funds
It is the Trust's policy to be as fully invested as possible so that
maximum interest may be earned. To this end, all payments from
shareholders must be in federal funds or be converted into federal
funds. State Street Bank acts as the shareholder's agent in depositing
checks and converting them to federal funds.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset
value is calculated by the Trust are described in the respective
prospectuses. Net asset value will not be calculated on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determining Market Value of Securities
Market values of the Trust's portfolio securities are determined as
follows:
o according to the mean between the over-the-counter bid and asked
prices provided by an independent pricing service, if available,
or at fair value as determined in good faith by the Trust's Board
of Trustees; or
o for short-term obligations with remaining maturities of less than
60 days at the time of purchase, at amortized cost unless the
Board of Trustees determines that particular circumstances of the
security indicate otherwise.
Prices provided by independent pricing services may be determined
without relying exclusively on quoted prices. Pricing services may
consider:
o yield;
o quality;
o coupon rate;
o maturity;
o type of issue;
o trading characteristics; and
o other market data.
Redeeming Shares
The Trust redeems Shares at the next computed net asset value after the
Trust receives the redemption request. Redemption procedures are
explained in the respective prospectuses under "Redeeming Institutional
Shares" and "Redeeming Institutional Service Shares." Although State
Street Bank does not charge for telephone redemptions, it reserves the
right to charge a fee for the cost of wire-transferred redemptions of
less than $5,000.
Redemption in Kind
The Trust is obligated to redeem Shares solely in cash up to $250,000 or
1% of the respective class 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 cash payments will have a material
adverse effect on remaining shareholders. In such a case, 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 receiving their securities and selling
them before their maturity could receive less than the redemption value
of their securities and could incur certain transaction costs.
Tax Status
The Trust's Tax Status
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Trust
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest,
and gains from the sale of securities;
o derive less than 30% of its gross income from the sale of
securities held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends and capital
gains received as cash or additional Shares. No portion of any income
dividend paid by the Trust is eligible for the dividends received
deduction available to corporations. These dividends, and any short-term
capital gains, are taxable as ordinary income.
Capital Gains
Long-term capital gains distributed to shareholders will be
treated as long-term capital gains regardless of how long
shareholders have held Shares.
Total Return
The Trust's average annual total return for Institutional Shares for the
one-year and five-year periods ended February 28, 1995, and for the
period from March 15, 1984 (effective date of the Trust's registration
statement) to February 28, 1995 were 3.14%, 6.34%, and 7.99%,
respectively. The Trust's cumulative total return for Institutional
Service Shares for the period from June 18, 1992 (start of performance
of Institutional Service Shares), through February 28, 1995, and for the
year ended February 28, 1995, was 3.78% and 2.88%, respectively.
Yield
The Trust's yield for the thirty day period ended February 28, 1995, was
6.60% and 6.35% for Institutional Shares and Institutional Service
Shares, respectively.
The yield for both classes of shares of the Trust is determined by
dividing the net investment income per share (as defined by the
Securities and Exchange Commission) earned by either class of shares
over a thirty-day period by the maximum offering price per share of
either class on the last day of the period. This value is annualized
using semi-annual compounding. This means that the amount of income
generated during the thirty-day period is assumed to be generated each
month over a twelve month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Trust
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment
in either class of shares, performance will be reduced for those
shareholders paying those fees.
Performance Comparisons
The performance of both classes of shares depends upon such variables
as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio
securities;
o changes in the Trust's expenses or either class of Share's
expenses; and
o various other factors.
Either class of Shares' performance fluctuates on a daily basis largely
because net earnings and offering price per share fluctuate daily. Both
net earnings and net asset value per share are factors in the
computation of yield and total return.
Investors may use financial publications and/or indices to obtain a
more complete view of the Trust's performance. When comparing
performance, investors should consider all relevant factors such as the
composition of any index used, prevailing market conditions, portfolio
compositions of other funds and methods used to value portfolio
securities and compute offering price. The financial publications and/or
indices which the Trust uses in advertising may include:
o Lipper Analytical Services, Inc. ranks funds in various categories
by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions
and income dividends and takes into account any change in net
asset value over a specific period of time. From time to time, the
Trust will quote its Lipper ranking in the "U.S. government funds"
category in advertising and sales literature.
o Merrill Lynch 1-3 Year Treasury Index is an unmanaged index
tracking short-term U.S. government securities with maturities
between 1 and 2.99 years. The index is produced by Merrill Lynch,
Pierce, Fenner & Smith, Inc.
o Lehman Brothers Intermediate Government Index is an unmanaged
index comprised of all publicly issued, non-convertible domestic
debt of the U.S. government or any agency thereof, or any quasi-
federal corporation and of corporate debt guaranteed by the U.S.
government. Only notes and bonds with minimum outstanding
principal of $1 million and minimum maturity of one year and
maximum maturity of ten years are included.
o Merrill Lynch 2-Year Treasury Curve Index is comprised of the most
recently issued 2-year U.S. Treasury notes. Index returns are
calculated as total returns for periods of one, three, six, and
twelve months as well as year-to-date.
o Merrill Lynch U.S. Treasury Short Term Index (1-2.99 years) is an
unmanaged index tracking short-term U.S. government securities
with maturities between 1 and 2.99 years. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith, Inc.
o 2-Year Treasury Note--Source: Wall Street Journal, Bloomberg
Financial Markets, and Telerate.
o Morningstar, Inc., an independent rating service, is the publisher
of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more
than 1,000 NASDQ-listed mutual funds of all types, according to
their risk-adjusted returns. The maximum rating is five stars, and
ratings are effective for two weeks.
Advertisements and other sales literature for both classes of shares may
quote total returns which are calculated on nonstandardized base
periods. These total returns also represent the historic change in the
value of an investment in either class of shares based on monthly
reinvestment of dividends over a specified period of time.
Duration
Duration is a commonly used measure of the potential volatility in the
price of a bond, or other fixed income security, or in a portfolio of
fixed income securities, prior to maturity. Volatility is the magnitude
of the change in the price of a bond relative to a given change in the
market rate of interest. A bond's price volatility depends on three
primary variables: the bond's coupon rate; maturity date; and the level
of market yields of similar fixed income securities. Generally, bonds
with lower coupons or longer maturities will be more volatile than bonds
with higher coupons or shorter maturities. Duration combines these
variables into a single measure.
Duration is calculated by dividing the sum of the time-weighted values
of the cash flows of a bond or bonds, including interest and principal
payments, by the sum of the present values of the cash flows.
When the Trust invests in mortgage pass-through securities, its duration
will be calculated in a manner which requires assumptions to be made
regarding future principal prepayments. A more complete description of
this calculation is available upon request from the Trust.
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