FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
PROSPECTUS
The shares of Federated Short-Term U.S. Government Trust (the "Trust") offered
by this prospectus represent interests in an open-end, diversified management
investment company (a mutual fund), investing in short-term U.S. government
securities to achieve high current income consistent with stability of principal
and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated February
28, 1995, with the Securities and Exchange Commission. The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information 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 February 28, 1995
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 4
When-Issued and Delayed Delivery
Transactions 4
Lending of Portfolio Securities 4
Investment Limitations 4
Regulatory Compliance 5
TRUST INFORMATION 5
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Management of the Trust 5
Board of Trustees 5
Investment Adviser 5
Advisory Fees 5
Adviser's Background 5
Distribution of Shares 6
Shareholder Services Plan 6
Glass-Steagall Act 6
Administration of the Trust 6
Administrative Services 6
Custodian 7
Transfer Agent and Dividend
Disbursing Agent 7
Independent Public Accountants 7
NET ASSET VALUE 7
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INVESTING IN THE TRUST 7
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Share Purchases 7
By Wire 7
By Mail 8
Minimum Investment Required 8
Subaccounting Services 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
REDEEMING SHARES 9
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By Mail 9
Telephone Redemption 9
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 10
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Voting Rights 10
Massachusetts Partnership Law 10
TAX INFORMATION 11
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Federal Income Tax 11
Pennsylvania Corporate and Personal
Property Taxes 11
Other State and Local Taxes 11
PERFORMANCE INFORMATION 11
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FINANCIAL STATEMENTS 12
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 20
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ADDRESSES 21
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).......... None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage
of offering price)................................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)............................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee......................................................................... None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.28%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.17%
Shareholder Services Fee (after waiver)(2).............................. 0.05%
Total Trust Operating Expenses(3).......................................... 0.45%
</TABLE>
(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 Trust operating expenses in the table above are based on expenses
expected during the fiscal year ending December 31, 1995. The total Trust
operating expenses were 0.45% for the fiscal year ended December 31, 1994, and
would have been 0.56% absent the voluntary waiver of a portion of the management
fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Trust will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "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......................................... $5 $14 $25 $57
</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.
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 20.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987(A)
----- ----- ----- ----- ----- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------
INCOME FROM INVESTMENT
OPERATIONS
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Net investment income 0.04 0.03 0.04 0.06 0.08 0.09 0.07 0.05
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LESS DISTRIBUTIONS
- ------------------------
Distributions from net
investment income (0.04) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.05)
- ------------------------
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------------------ ---- ---- ---- ---- ---- ---- ---- -----
TOTAL RETURN (B) 3.99% 2.95% 3.64% 5.93% 8.11% 9.17% 7.47% 4.95%
- ------------------------
RATIOS TO AVERAGE
NET ASSETS
- ------------------------
Expenses 0.45% 0.46% 0.46% 0.46% 0.46% 0.47% 0.48% 0.42%(c)
- ------------------------
Net investment income 3.89% 2.92% 3.58% 5.80% 7.82% 8.80% 7.39% 6.76%(c)
- ------------------------
Expense waiver/
reimbursement (d) 0.11% 0.05% 0.03% 0.03% 0.04% 0.04% 0.08% 0.20%(c)
- ------------------------
SUPPLEMENTAL DATA
- ------------------------
Net assets, end of
period
(000 omitted) $977,106 $1,084,680 $1,012,509 $959,881 $1,091,158 $923,088 $564,343 $206,644
- ------------------------
</TABLE>
(a) Reflects operations for the period from April 16, 1987 (date of initial
public investment) to December 31, 1987. For the period from the start of
business, April 6, 1987 to April 15, 1987, net investment income was
distributed to the Trust's adviser.
(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.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated February 2, 1987. The Trust is designed as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio
investing only in short-term U.S. government securities. A minimum initial
investment of $25,000 within a 90-day period is required.
The Trust attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Trust is high current income consistent with
stability of principal and liquidity. While there is no assurance that the Trust
will achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus. The investment objective and
the policies and limitations described below, unless indicated otherwise, cannot
be changed without shareholder approval.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing only in a portfolio of
U.S. government securities. As a matter of operating policy, which may be
changed without shareholder approval, the Trust will limit the maturity of
individual portfolio securities to 13 months or less, and will limit the average
maturity of its portfolio to 90 days or less, in order to meet regulatory
requirements.
ACCEPTABLE INVESTMENTS. The Trust invests only in short-term U.S. government
securities. These instruments are either issued or guaranteed by the U.S.
government, its agencies, or instrumentalities. These securities include, but
are not limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; 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; and Student Loan
Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial
support to other agencies or instrumentalities, since it is not obligated to do
so. These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
REPURCHASE AGREEMENTS. Certain securities in which the Trust invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
seller does not repurchase the securities from the Trust, the Trust could
receive less than the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Trust purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Trust to miss a price or yield considered to be advantageous.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices. Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
As a matter of operating policy, which may be changed without shareholder
approval, the Trust may dispose of a commitment prior to settlement if the
adviser deems it appropriate to do so. In addition, the Trust may enter into
transactions to sell its purchase commitments to third parties at current market
values and simultaneously acquire other commitments to purchase similar
securities at later dates. Also, the Trust may realize short-term profits or
losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Trust may lend its portfolio securities on a short-term or long-term basis, or
both, up to one-third of the value of its total assets to broker/dealers, banks,
or other institutional borrowers of securities. The Trust will only enter into
loan arrangements with broker/dealers, banks, or other institutions which the
adviser has determined are creditworthy under guidelines established by the
Trust's Trustees and will receive collateral at all times equal to at least 100%
of the value of the securities loaned. There is the risk that when lending
portfolio securities, the securities may not be available to the Trust on a
timely basis and the Trust may, therefore, lose the opportunity to sell the
securities at a desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
INVESTMENT LIMITATIONS
The Trust will not borrow money directly or through reverse repurchase
agreements (arrangements in which the Trust sells a money market instrument for
a percentage of its cash value with an agreement to buy it back on a set date)
or pledge securities except, under certain circumstances, the Trust may borrow
up to one-third of the value of its total assets and pledge.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Trust will not invest more than 10% of its net assets in illiquid
securities.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Trust
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Trust will determine the effective maturity of its
investments according to Rule 2a-7. The Trust may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
the Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research (the "Adviser"), the Trust's investment adviser, subject to direction
by the Trustees. The Adviser continually conducts investment research and
supervision for the Trust and is responsible for the purchase and sale of
portfolio instruments.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets. The Adviser has
undertaken to reimburse the Trust up to the amount of the advisory fee for
operating expenses in excess of limitations established by certain states.
The Adviser also may voluntarily choose to waive a portion of its fee or
reimburse other expenses of the Trust, but reserves the right to terminate
such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Research, 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 Research and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide
administrative services to a number of investment companies. Total assets
under management or administration by these and other subsidiaries of
Federated Investors are approximately $70 billion. Federated Investors,
which was founded in 1956 as Federated Investors, Inc., develops and
manages mutual funds primarily for the financial industry. Federated
Investors' track record of competitive performance and its disciplined,
risk averse investment philosophy serve approximately 3,500 client
institutions nationwide. Through these same client institutions, individual
shareholders also have access to this same level of investment expertise.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES PLAN. The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it will pay Federated Shareholder Services, an
affiliate of Federated Investors, an amount not exceeding .25 of 1% of the
average daily net asset value of the Trust to provide personal services and/or
maintenance of shareholder accounts to the Trust and its shareholders. From time
to time and for such periods as deemed appropriate, the amount stated above may
be reduced voluntarily.
Federated Shareholder Services may elect to pay financial institutions fees
based upon shares owned by their clients or customers for services provided to
those 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 Federated
Shareholder Services.
GLASS-STEAGALL ACT. 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 administrative services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate as specified
below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
-------------------------------- --------------------------------
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
on assets in excess of $750
.075 of 1% 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. Average
aggregate daily net assets include those of all mutual funds advised by
affiliates of Federated Investors. Federated Administrative Services may choose
voluntarily to waive a portion of its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, MA, is custodian for
the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, PA is transfer agent for the shares of, and dividend disbursing
agent for, the Trust. Federated Services Company is a subsidiary of Federated
Investors.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Trust are Arthur Andersen LLP, Pittsburgh, PA.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Trust cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange each day the New York Stock Exchange is open.
INVESTING IN THE TRUST
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SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange and the Federal Reserve wire are open for business. Shares may be
purchased either by wire or mail. The Trust reserves the right to reject any
purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone.
BY WIRE. To purchase by Federal Reserve wire, call the Trust before 3:00 p.m.
(Eastern time) to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. (Eastern time) that
day. Federal funds should be wired as follows: Federated Services Company, c/o
State Street Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit
to: Federated Short-Term U.S. Government Trust; Trust Number (this number can be
found on the account statement or by contacting the Trust); Group Number or
Order Number; Nominee or Institution Name; and ABA Number 011000028.
BY MAIL. To purchase by mail, send a check made payable to Federated Short-Term
U.S. Government Trust to: Federated Services Company, c/o State Street Bank and
Trust Company, Federated Short-Term U.S. Government Trust, P.O. Box 8602,
Boston, MA 02266-8602. Orders by mail are considered received when payment by
check is converted into federal funds. This is normally the next business day
after the check is received.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment is $25,000. However, an account may be opened
with a smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Trust. Financial institutions may impose different minimum investment
requirements on their customers.
SUBACCOUNTING SERVICES
Financial institutions are encouraged to open single master accounts. However,
certain financial 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. Financial institutions 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
Trust shares. This prospectus should, therefore, be read together with any
agreement between the customer and the financial 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 or Federated Services Company in writing.
Monthly confirmations are sent to report transactions such as all purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Trust unless cash
payments are requested by writing to the Trust. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends the day after the check is converted into federal
funds.
CAPITAL GAINS
The Trust does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Trust will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Services Company receives the redemption request. Redemptions will be made on
days on which the Trust computes its net asset value. Redemption requests must
be received in proper form and can be made as described below.
BY MAIL
Shares may be redeemed by sending a written request to: Federated Short-Term
U.S. Government Trust, Federated Services Company, c/o State Street Bank and
Trust Company, P.O. Box 8602, Boston, MA 02266-8602. The written request should
state: Federated Short-Term U.S. Government Trust; shareholder's name; the
account number; and the share or dollar amount requested. Sign the request
exactly as the shares are registered. Shareholders should call the Trust for
assistance in redeeming by mail.
If share certificates have been issued, they must be properly endorsed and
should be sent by registered or certified mail with the written request.
Shareholders 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 their
signatures guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, 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 the 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 the
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
TELEPHONE REDEMPTION
Shares may be redeemed by telephoning the Trust. Telephone instructions may be
recorded and if reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions. 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.
If the redemption request is received before 3:00 p.m. (Eastern time), the
proceeds will be wired the same day to the shareholder's account at a domestic
commercial bank which is a member of the Federal Reserve System, and those
shares redeemed will not be entitled to that day's dividend. A daily dividend
will be paid on shares redeemed if the redemption request is received after 3:00
p.m. (Eastern time). However, the proceeds are not wired until the following
business day. Under limited circumstances, arrangements may be made with the
distributor for same-day payment of proceeds, without that day's dividend, for
redemption requests received after 3:00 p.m. (Eastern time).
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 "By Mail," should be considered. If at any time
the Trust shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
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 due to
shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
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. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
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.
OTHER STATE AND LOCAL TAXES. Shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Trust advertises its yield and effective yield.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and sales literature may also refer to total return. Total return
represents the change, over a specified period of time, in the value of an
investment in the Trust after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare its
performance to certain indices.
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--54.8%
- -----------------------------------------------------------------------------------
$ 62,140,000 * Federal Home Loan Bank, Discount Notes - 6.2%
4.90%-6.60%, 2/21/95-11/22/95 $ 60,675,611
---------------------------------------------------------------
17,000,000 ** Federal Home Loan Bank, Floating Rate Note - 1.7%
5.68%, 1/4/95 16,993,485
---------------------------------------------------------------
26,475,000 * Federal Home Mortgage Corp., Discount Notes - 2.7%
5.59%-5.70%, 4/4/95-4/24/95 26,068,428
---------------------------------------------------------------
20,500,000 ** Federal Home Mortgage Corp., Floating Rate Note - 2.1%
5.44%, 1/3/95 20,487,588
---------------------------------------------------------------
168,000,000 * Federal National Mortgage Association, Discount Notes - 17.0%
4.90%-6.63%, 1/5/95-7/24/95 166,141,482
---------------------------------------------------------------
16,500,000 ** Federal National Mortgage Association, Floating Rate Note -
1.7%
5.58%, 1/3/95 16,493,405
---------------------------------------------------------------
84,855,000 ** Housing & Urban Development Floating Rate Note - 8.7%
6.38%, 1/3/95 84,855,000
---------------------------------------------------------------
13,718,585 ** Export/Import Bank, Floating Rate Note - 1.4%
7.53%, 1/4/95 13,708,763
---------------------------------------------------------------
80,000,000 ** Student Loan Marketing Association, Floating Rate Notes - 8.2%
5.87%-6.32%, 1/4/95 79,988,073
---------------------------------------------------------------
23,000,000 U.S. Treasury Bills - 2.3%
3.60%-5.37%, 2/9/95-8/24/95 22,501,977
---------------------------------------------------------------
27,000,000 U.S. Treasury Notes - 2.8%
5.50%-8.50%, 2/15/95-5/15/95 27,105,390
--------------------------------------------------------------- ------------
TOTAL SHORT-TERM OBLIGATIONS 535,019,202
--------------------------------------------------------------- ------------
REPURCHASE AGREEMENTS***--45.4%
- -----------------------------------------------------------------------------------
25,000,000 Deutsche Bank Government Securities 6.07%, dated 12/30/94, due
1/3/95 25,000,000
---------------------------------------------------------------
35,000,000 Fuji Government Securities, Inc. 6.08%, dated 12/30/94, due
1/3/95 35,000,000
---------------------------------------------------------------
45,000,000 Greenwich Capital Markets, Inc. 6.10%, dated 12/30/94, due
1/3/95 45,000,000
---------------------------------------------------------------
37,000,000 J.P. Morgan Securities, Inc., 6.10%, dated 12/30/94, due 1/3/95 37,000,000
---------------------------------------------------------------
</TABLE>
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------------------------------------------------------- ------------
<C> <C> <S> <C>
REPURCHASE AGREEMENTS--CONTINUED
- -----------------------------------------------------------------------------------
$ 18,000,000 Merrill Lynch Government Securities, Inc., 6.20%, dated
12/30/94, due 1/3/95 $ 18,000,000
---------------------------------------------------------------
40,000,000 Morgan Stanley & Co., Inc. 6.75%, dated 12/30/94, due 1/3/95 40,000,000
---------------------------------------------------------------
40,000,000 Nationsbank Capital Markets, 6.25%, dated 12/30/94, due 1/3/95 40,000,000
---------------------------------------------------------------
100,000,000 PaineWebber, Inc., 6.08%, dated 12/30/94, due 1/3/95 100,000,000
---------------------------------------------------------------
42,400,000 UBS Securities, Inc. 6.00%, dated 12/30/94, due 1/3/95 42,400,000
---------------------------------------------------------------
22,000,000 + First Boston Corp., 5.40%, dated 10/20/94, due 1/3/95 22,000,000
---------------------------------------------------------------
23,000,000 + Lehman Government Securities, 5.55%, dated 10/5/94, due 1/3/95 23,000,000
---------------------------------------------------------------
16,000,000 + Lehman Government Securities, 5.55%, dated 10/28/94, due 1/4/95 16,000,000
--------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 443,400,000
--------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $978,419,202++
--------------------------------------------------------------- ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
** Current rate and next demand date shown.
*** Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in repurchase agreements are through participation in joint
accounts with other Federated funds.
+ Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement.
++ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($977,105,964) at December 31, 1994.
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $443,400,000
- -----------------------------------------------------------------
Investments in securities 535,019,202
- ----------------------------------------------------------------- ------------
Total investments in securities, at amortized cost and value $978,419,202
- --------------------------------------------------------------------------------
Cash 90,455
- --------------------------------------------------------------------------------
Income receivable 2,483,076
- --------------------------------------------------------------------------------
Receivable for Shares sold 242,169
- -------------------------------------------------------------------------------- ------------
Total assets 981,234,902
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for Shares redeemed 371,328
- -----------------------------------------------------------------
Income distribution payable 3,686,225
- -----------------------------------------------------------------
Accrued expenses 71,385
- ----------------------------------------------------------------- ------------
Total liabilities 4,128,938
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 977,105,964 Shares outstanding $977,105,964
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
($977,105,964 / 977,105,964 Shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest Income $43,740,920
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $4,025,146
- --------------------------------------------------------------------
Administrative personnel and services fee 743,194
- --------------------------------------------------------------------
Custodian fees 263,342
- --------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 43,754
- --------------------------------------------------------------------
Trustees' fees 13,921
- --------------------------------------------------------------------
Auditing fees 18,886
- --------------------------------------------------------------------
Legal fees 11,831
- --------------------------------------------------------------------
Portfolio accounting fees 56,374
- --------------------------------------------------------------------
Shareholder services fee 416,673
- --------------------------------------------------------------------
Share registration costs 15,814
- --------------------------------------------------------------------
Printing and postage 9,886
- --------------------------------------------------------------------
Insurance premiums 19,485
- --------------------------------------------------------------------
Taxes 4,208
- --------------------------------------------------------------------
Miscellaneous 3,400
- -------------------------------------------------------------------- ----------
Total expenses 5,645,914
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 1,078,279
- -------------------------------------------------------------------- ----------
Net expenses 4,567,635
- --------------------------------------------------------------------------------- -----------
Net investment income $39,173,285
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------
Net investment income $ 39,173,285 $ 29,694,766
- --------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------
Distributions from net investment income (39,173,285) (29,694,766)
- --------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS
- ---------------------------------------------------------
Proceeds from sale of Shares 3,137,334,559 3,337,393,254
- ---------------------------------------------------------
Net assets value of Shares issued to shareholders in
payment of distributions declared 6,460,619 5,884,088
- ---------------------------------------------------------
Cost of Shares redeemed (3,251,369,237) (3,271,106,501)
- --------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share
transactions (107,574,059) 72,170,841
- --------------------------------------------------------- --------------- ---------------
Change in net assets (107,574,059) 72,170,841
- ---------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------
Beginning of period 1,084,680,023 1,012,509,182
- --------------------------------------------------------- --------------- ---------------
End of period $ 977,105,964 $ 1,084,680,023
- --------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
- --------------------------------------------------------------------------------
1. ORGANIZATION
Federated Short-Term U.S. Government Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a diversified,
open-end, no-load management investment company.
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--The Trust's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral 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.
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 taxable income. Accordingly, no
provisions for federal tax are necessary.
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.
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
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
- --------------------------------------------------------------------------------
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.
GENERAL--Investment transactions are accounted for on the trade date.
3. CAPITAL SHARES
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
December 31, 1994, capital paid-in aggregated $977,105,964. Transactions in
capital shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
- ------------------------------------------------------------
Shares Sold 3,137,334,559 3,337,393,254
- ------------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 6,460,619 5,884,088
- ------------------------------------------------------------
Shares redeemed (3,251,369,237) (3,271,106,501)
- ------------------------------------------------------------ -------------- --------------
Net change (107,574,059) 72,170,841
- ------------------------------------------------------------ -------------- --------------
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Research, 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 a 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. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, 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 share.
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.
TRANSFER AGENT FEES--Federated Services Company ("FServ") serves as transfer and
dividend disbursing agent for the Trust. This fee is based on the size, type,
and number of accounts and transactions made by shareholders.
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
- --------------------------------------------------------------------------------
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records. The
FServ fee is based on the level of the Fund's average net assets for the period
plus, out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees of
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST:
We have audited the accompanying statement of assets and liabilities of
Federated Short-Term U.S. Government Trust (a Massachusetts business trust),
including the schedule of portfolio investments, as of December 31, 1994, and
the related statement of operations for the year then ended, and the statement
of changes in net assets, and the financial highlights (see page 2 of the
prospectus) for each of the periods presented. 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 our 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
December 31, 1994, 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 Short-Term U.S. Government Trust as of December 31, 1994, the results
of its operations for the year then ended, the changes in its net assets, and
the financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
February 3, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Federated Short-Term U.S. Government Trust
Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Research Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, MA 02266-8602
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
FEDERATED SHORT-TERM U.S.
GOVERNMENT TRUST
PROSPECTUS
An Open-End, Diversified,
Management Investment Company
Prospectus dated February 28, 1995
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
313905101
8020102A(2/95)
Federated Short-Term U.S. Government Trust
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of Federated Short-Term U.S. Government Trust (the
"Trust") dated February 28, 1995. This Statement is not a
prospectus. To receive a copy of a prospectus, write or call the
Trust.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated February 28, 1995
Federated Securities Corp.
Distributor
A subsidiary of
Federated Investors
Investment Policies 1
Acceptable Investments 1
When-Issued And Delayed
Delivery Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Lending of Portfolio Securities 1
Investment Limitations 2
Brokerage Transactions 3
Federated Short-Term U.S.
Government Trust Management 3
Share Ownership 7
Trustees Compensation 7
Trustee Liability 8
Investment Advisory Services 8
Investment Adviser 8
Advisory Fees 8
Shareholder Services Plan 8
Determining Net Asset Value 9
Redemption in Kind 9
The Trust's Tax Status 9
Performance Information 9
Yield 10
Effective Yield 10
Total Return 10
Performance Comparisons 10
Investment Policies
Unless indicated otherwise, the policies described below may not be
changed by the Trustees without shareholder approval.
Acceptable Investments
Some of the short-term U.S. government securities the Trust may
purchase carry variable interest rates. These securities have a rate
of interest subject to adjustment at least annually. This adjusted
interest rate is ordinarily tied to some objective standard, such as
the 91-day U.S. Treasury bill rate. Variable interest rates will reduce
the changes in the market value of such securities from their original
purchase prices. Accordingly, the potential for capital appreciation
or capital depreciation should not be greater than that of fixed
interest rate U.S. government securities having maturities equal to the
interest rate adjustment dates of the variable rate U.S. government
securities. The Trust may purchase variable rate U.S. government
securities upon the determination by the Board of Trustees that the
interest rate as adjusted will cause the instrument to have a current
market value that approximates its par value on the adjustment date.
When-Issued And Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses,
other than normal transaction costs, are incurred. However, liquid
assets of the Trust 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. As a matter of operating policy, 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 or its custodian will take possession of the securities
subject to repurchase agreements, and these securities will be marked to
market daily. In the event that 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.
Reverse Repurchase Agreements
The Trust may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Trust transfers possession of a portfolio instrument in
return for a percentage of the instrument's market value in cash and
agrees that on a stipulated date in the future the Trust will
repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Trust to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous,
but does not ensure this result. When effecting reverse repurchase
agreements, liquid assets of the Trust, in a dollar amount sufficient to
make payment for the obligations to be purchased, are: segregated on the
Trust's records at the trade date; marked to market daily; and
maintained until the transaction is settled.
Lending of Portfolio Securities
The collateral received when the Trust lends portfolio securities must
be valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Trust.
During the time portfolio securities are on loan, the borrower pays the
Trust any dividends or interest paid on such securities. Loans are
subject to termination at the option of the Trust or the borrower. The
Trust may pay reasonable administrative and custodial fees in connection
with a loan and may pay a negotiated portion of the interest earned on
the cash or equivalent collateral to the borrower or placing broker.
Investment Limitations
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 are
necessary for clearance of transactions.
Issuing Senior Securities and Borrowing Money
The Trust will not issue senior securities. The Trust will not
borrow money except as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of 5% of
the value of its total assets or in an amount up to one-third of
the value of its total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling
portfolio instruments. Any such borrowings would not be
collateralized.
Pledging Assets
The Trust will not pledge pledge securities, except that it may
engage in reverse repurchase agreements permitted by its
investment objective and policies.
Lending Cash or Securities
The Trust will not lend any assets, except portfolio securities up
to one-third of the value of its total assets. This shall not
prevent the Trust from engaging in transactions permitted by its
investment objective, policies, and limitations or Declaration of
Trust.
Acquiring Securities
The Trust will not acquire the voting securities of any issuer,
except as a part of a merger, consolidation, reorganization, or
acquisition of assets.
The above limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material change in these limitations becomes effective.
Investing in Restricted Securities
The Trust will not invest in securities subject to restrictions on
resale under federal securities law.
Investing in Illiquid Securities
The Trust will not invest more than 10% of the value of its net
assets in illiquid securities.
Investing in Securities of Other Investment Companies
The Trust will not purchase securities of other investment
companies, except as part of a merger, consolidation, or other
acquisition.
Investing in New Issuers
The Trust will not invest more than 5% of the value of its total
assets in securities of issuers which have records of less than
three years of continuous operations, including the operation of
any predecessor.
Investing for Control
The Trust will not invest in securities of a company for the
purpose of exercising control or management.
Investing in Issuers Whose Securities Are Owned by Officers of the
Trust
The Trust will not purchase or retain the securities of any issuer
if the Officers and Trustees of the Trust or its investment
adviser owning individually more than .50 of 1% of the issuer's
securities together own more than 5% of the issuer's securities.
Investing in Options
The Trust will not invest in puts, calls, straddles, spreads, or
any combination of them.
Investing in Minerals
The Trust will not purchase or sell interests in oil, gas, or
other mineral exploration or development programs or leases,
although it may purchase the securities of issuers which invest in
or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such limitation.
The Trust did not borrow money in excess of 5% of the value of its net
assets during the last fiscal year and has no present intent to do so
during the coming fiscal year.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the
order at a favorable price. In working with dealers, the adviser will
generally use those who are recognized dealers in specific portfolio
instruments, except when a better price and execution of the order can
be obtained elsewhere. The adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to guidelines
established by the 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: advice as to the advisability of investing in securities;
security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services.
Research services provided by brokers and dealers may be used by the
adviser or its affiliates in advising the Trust and other accounts. To
the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would
tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage
and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal years ended 1994, 1993, and 1992,
the Trust paid no brokerage commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the
type the Trust may make may also be made by those other accounts. When
the Trust and one or more other accounts managed by the adviser are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the adviser to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the
Trust or the size of the position obtained or disposed of by the Trust.
In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of
the Trust.
Federated Short-Term U.S. Government Trust Management
Officers and Trustees are listed with their addresses, present
positions with Federated Short-Term U.S. Government Trust, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
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
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, 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 15282
John E. Murray, Jr.
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; 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.
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.
As referred to in the table above "Funds" include the following
investment companies:
American Leaders Fund, Inc.; Annuity Management Series; Arrow Funds;
Automated Cash Management Trust; Automated Government Money Trust;
California Municipal Cash Trust; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth
Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund;
First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.;
Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.;
Government Income Securities, Inc.; High Yield Cash Trust; Insight
Institutional Series, Inc.; Insurance Management Series; Intermediate
Municipal Trust; International Series, Inc.; Investment Series Funds,
Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc. -
1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; The Medalist Funds: Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; 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.
Share Ownership
Officers and Trustees as a group own less than 1% of the Trust's
outstanding shares.
As of February 6, 1995, the following shareholder of record owned 5% or
more of the outstanding shares of the Trust: Prudential Bank & Trust
Company, Atlanta, GA, 6.65%.
Trustees Compensation
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST FROM FUND COMPLEX +
Thomas G. Bigley $491.00 $20,688 for the Trust and
50 other investment companies in the Fund
Complex
John T. Conroy, Jr. $2,184.75 $117,202 for the Trust and
65 other investment companies in the Fund
Complex
William J. Copeland $2,184.75 $117,202 for the Trust and
65 other investment companies in the Fund
Complex
James E. Dowd $2,184.75 $117,202 for the Trust and
65 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D. $1,979.50 $106,460 for the Trust and
65 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr. $2,184.75 $117,202 for the Trust and
65 other investment companies in the Fund
Complex
Peter E. Madden $1,684.50 $90,563 for the Trust and
65 other investment companies in the Fund
Complex
Gregor F. Meyer $1,979.50 $106,460 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 $1,979.50 $106,460 for the Trust and
65 other investment companies in the Fund
Complex
Marjorie P. Smuts $1,979.50 $106,460 for the Trust and
65 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended December 31, 1994.
+ The information is provided for the last calendar year.
Trustee Liability
The Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
Investment Advisory Services
Investment Adviser
The Trust's investment adviser is Federated Research. It is a
subsidiary of Federated Investors. All the voting securities of
Federated Investors are owned by a trust, the trustees of which are John
F. Donahue, his wife and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Advisory Fees
For its advisory services, Federated Research receives an annual
investment advisory fee as described in the prospectus. For the fiscal
years ended December 31, 1994, 1993, and 1992, the adviser earned
$4,025,146, $4,074,942, and $4,197,491, respectively, of which
$1,078,279, $484,732 and $303,231, respectively, were voluntarily
waived.
State Expense Limitations
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Trust's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2-1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1-1/2% per year of the remaining
average net assets, the adviser will reimburse the Trust for its
expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by
the amount of the excess, subject to an annual adjustment. If the
expense limitation is exceeded, the amount to be reimbursed by the
adviser will be limited, in any single fiscal year, by the amount
of the investment advisory fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust for a fee as
described in the prospectus. Prior to March 1, 1994, Federated
Administrative Services, Inc., also a subsidiary of Federated Investors,
served as the Trust's Administrator. (For purposes of this Statement of
Additional Information, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred
to as the "Administrators".) For the fiscal years ended December 31,
1994, 1993, and 1992, the Administrators earned $743,194, $593,548, and
$469,573, respectively. Dr. Henry J. Gailliot, an officer of Federated
Research, 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.
Shareholder Services Plan
This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided
which are necessary for the maintenance of shareholder accounts and to
encourage personal services 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:
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 balance; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses. By adopting the Shareholder Services Plan,
the Board of Trustees expects that the Trust will benefit by:
(1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
(3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts. For the fiscal period ended December 31, 1994, payments in
the amount of $416,673 were made pursuant to the Shareholder Services
Plan, all of which was paid to financial institutions.
Custodian and Portfolio Recordkeeper. State Street Bank and Trust
Company, Boston, MA, is custodian for the securities and cash of the
Trust. It also provides certain accounting and recordkeeping services
with respect to the Trust's portfolio investments.
Transfer Agent. As transfer agent, Federated Services Company maintains
all necessary shareholder records. For its services, the transfer agent
receives a fee based on the number of shareholder accounts.
Determining Net Asset Value
The Trustees have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at
current market value. Accordingly, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio. In periods of declining interest rates,
the indicated daily yield on shares of the Trust computed by dividing
the annualized daily income on the Trust's portfolio by the net asset
value computed as above may tend to be higher than a similar computation
made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be
true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-
7 (the "Rule") promulgated by the Securities and Exchange Commission
under the Investment Company Act of 1940. Under the Rule, the Trustees
must establish procedures reasonably designed to stabilize the net asset
value per share, as computed for purposes of distribution and
redemption, at $1.00 per share, taking into account current market
conditions and the Trust's investment objective. The procedures include
monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of
market value. The Trustees will decide what, if any, steps should be
taken if there is a difference of more than 0.5 of 1% between the two
values. The Trustees will take any steps they consider appropriate (such
as redemption in kind or shortening the average portfolio maturity) to
minimize any material dilution or other unfair results arising from
differences between the two methods of determining net asset value.
Redemption in Kind
The Trust is obligated to redeem shares solely in cash up to $250,000 or
1% of the Trust's net asset value, whichever is less, for any one
shareholder within a 90-day period. Any redemption beyond this amount
will also be in cash unless the Trustees determine that further payments
should be in kind. In such cases, the Trust will pay all or a portion
of the remainder of the redemption in portfolio instruments valued in
the same way as the Trust determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable. Redemption in kind is not as liquid as a cash redemption.
If redemption is made in kind, shareholders who sell these securities
could receive less than the redemption value and could incur certain
transaction costs.
The Trust's Tax Status
To qualify for the special tax treatment afforded to regulated
investment companies, the Trust must, among other requirements: derive
at least 90% of its gross income from dividends, interest, and gains
from the sale of securities; derive less than 30% of its gross income
from the sale of securities held less than three months; invest in
securities within certain statutory limits; and distribute to its
shareholders at least 90% of its net income earned during the year.
Performance Information
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is
invested; changes in interest rates; changes in expenses; and the
relative amount of cash flow. To the extent that financial institutions
and broker/dealers charge fees in connection with services provided in
conjunction with an investment in shares of the Trust, the performance
will be reduced for those shareholders paying those fees.
Yield
The yield is calculated based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any
additional shares purchased with dividends earned from the original one
share and all dividends declared on the original and any purchased
shares; dividing the net change in the account's value by the value of
the account at the beginning of the base period to determine the base
period return; and multiplying the base period return by 365/7.
The Trust's yield for the seven-day period ended December 31, 1994, was
5.43%.
Effective Yield
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result.
The Trust's effective yield for the seven-day period ended December 31,
1994, was 5.58%.
Total Return
Average annual total return is the average compounded rate of return for
a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value
is computed by multiplying the number of shares owned at the end of the
period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number
of shares purchased at the beginning of the period with $1,000, adjusted
over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
Performance Comparisons
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition
of any index used, prevailing market conditions, portfolio compositions
of other funds, and methods used to value portfolio securities and
compute offering price. The financial publications and/or indices which
the Trust uses in advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund
categories based on total return, which assumes the reinvestment
of all income dividends and capital gains distributions, if any.
o Donoghue's Money Fund Report publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12-month-to-date investment results for the
same money funds.
o Money, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day
effective yield.
o Salomon 30-Day Treasury Bill Index is a weekly quote of the most
representative yields for selected securities, issued by the U.S.
Treasury, maturing in 30 days
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