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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). The Trust invests 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
29, 1996, with the Securities and Exchange Commission. The information contained
in the Statement of Additional Information is incorporated by reference into
this prospectus. You may request a copy of the Statement of Additional
Information or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-235-4669. 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 29, 1996
TABLE OF CONTENTS
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SUMMARY OF TRUST 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
Investment Limitations 4
TRUST INFORMATION 5
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Management of the Trust 5
Distribution of Shares 6
Administration of the Trust 6
NET ASSET VALUE 7
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HOW TO PURCHASE SHARES 7
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HOW TO REDEEM SHARES 8
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ACCOUNT AND SHARE INFORMATION 9
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TAX INFORMATION 10
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Federal Income Tax 10
State and Local Taxes 10
PERFORMANCE INFORMATION 10
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FINANCIAL STATEMENTS 11
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 19
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ADDRESSES 20
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........ None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage
of offering price)................................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)............................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee......................................................................... None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.28%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.18%
Shareholder Services Fee (after waiver)(2).............................. 0.05%
Total Operating Expenses(3)................................................ 0.46%
</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 operating expenses would have been 0.78% absent the voluntary
waivers of portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of 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
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<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 $15 $26 $58
</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 19.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1995 1994 1993 1992 1991 1990 1989 1988 1987(A)
------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------
INCOME FROM INVESTMENT
OPERATIONS
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Net investment income 0.06 0.04 0.03 0.04 0.06 0.08 0.09 0.07 0.05
- ----------------------------
LESS DISTRIBUTIONS
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Distributions from net
investment income (0.06) (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 $ 1.00
- ---------------------------- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL RETURN (B) 5.72% 3.99% 2.95% 3.64% 5.93% 8.11% 9.17% 7.47% 4.95%
- ----------------------------
RATIOS TO AVERAGE NET ASSETS
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Expenses 0.46% 0.45% 0.46% 0.46% 0.46% 0.46% 0.47% 0.48% 0.42%*
- ----------------------------
Net investment income 5.57% 3.89% 2.92% 3.58% 5.80% 7.82% 8.80% 7.39% 6.76%*
- ----------------------------
Expense waiver/
reimbursement (c) 0.32% 0.11% 0.05% 0.03% 0.03% 0.04% 0.04% 0.08% 0.20%*
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SUPPLEMENTAL DATA
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Net assets, end of period
(000 omitted) $773,851 $977,106 $1,084,680 $1,012,509 $959,881 $1,091,158 $923,088 $564,343 $206,644
- ----------------------------
</TABLE>
* Computed on an annualized basis.
(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 charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
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 for institutional
investors such as banks, fiduciaries, custodians of public funds, and similar
institutional investors, such as corporations, unions, hospitals, insurance
companies, and municipalities 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. This investment objective cannot be
changed without shareholder approval. While there is no assurance that the Trust
will achieve its investment objective, it endeavors to do so by complying with
the various requirements of Rule 2a-7 under the Investment Company Act of 1940
which regulates money market mutual funds and by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing only in a portfolio of
short-term U.S. government securities maturing in 13 months or less. The average
maturity of the securities in the Trust's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS. As a matter of fundamental policy which cannot be
changed without shareholder approval, the Trust invests only in short-term U.S.
government securities. This policy is achieved by purchasing instruments which
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.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
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, 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 assets to secure
such borrowings.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Trust will not invest more than 10% of its net assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven days after notice.
TRUST INFORMATION
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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 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. With over $80 billion invested across
more than 250 funds under management and/or administration by its
subsidiaries, as of December 31, 1995, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 1,800 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,000 financial institutions nationwide. More than 100,000
investment professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Trust; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to 0.25 of 1.00% of the
average daily net asset value of the Trust, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily.
Under the Shareholder Services Agreement, 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 client or customers. The schedules
of such fees and the basis upon which fees will be paid will be determined from
time to time by the Trust and Federated Shareholder Services.
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
.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. 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.
NET ASSET VALUE
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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, Monday through Friday, except on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
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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 is open for business. Shares may be purchased either by wire or by
check. 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. 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.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Trust before 3:00 p.m. (Eastern time) to place an order. The order
is considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Federated Short-Term
U.S. Government Trust; Fund Number (this number can be found on the account
statement or by contacting the Trust); Group Number or Order Number; Nominee or
Institution Name; and ABA Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to Federated Short-Term U.S. Government Trust.
Orders by mail are considered received when payment by check is converted into
federal funds (normally the business day after the check is received), and
shares begin earning dividends the next day.
SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single
master accounts. A subaccounting system is available through the transfer agent
to minimize 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. State
securities laws may require certain financial institutions such as depository
institutions to register as dealers.
HOW TO REDEEM SHARES
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Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Trust computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by calling
the Trust provided the Trust has a properly completed authorization form. These
forms can be obtained from Federated Securities Corp. Proceeds from redemption
requests received before 3:00 p.m. (Eastern time) will be wired the same day to
the shareholder's account at a domestic commercial bank which is a member of the
Federal Reserve System, but will not include that day's dividend. Proceeds from
redemption requests received after that time include that day's dividend but
will be wired the following business day. Proceeds from redemption requests
received on holidays when wire transfers are restricted will be wired the
following business day. Questions about telephone redemptions on days when wire
transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Trust shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Short-Term U.S. Government Trust, Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Trust name; the account name as registered
with the Trust; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the proceeds is
mailed within one business day, but in no event more than seven days, after the
receipt of a proper written redemption request. Dividends are paid up to and
including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Trust or a redemption payable other than to
the shareholder of record must have their
signatures guaranteed by a commercial or savings bank, trust company or savings
association whose deposits are insured by an organization which is administered
by the Federal Deposit Insurance Corporation; a member firm of a domestic stock
exchange; or any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934. The Trust does not accept signatures guaranteed
by a notary public.
ACCOUNT AND SHARE INFORMATION
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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.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Trust, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Trust or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Trust may redeem shares in any account, except accounts
maintained by retirement plans, and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $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.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. The Trust is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Trust's operation and for election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
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FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, 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
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From time to time, the Trust advertises its total return, 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.
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 the
Trust's performance to certain indices.
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM OBLIGATIONS--45.7%
- -----------------------------------------------------------------------------------
$ 7,000,000 (a) Federal Farm Credit Bank, Discount Note--0.9%
6.66%, 2/23/1996 $ 6,936,415
---------------------------------------------------------------
27,600,000 Federal Home Loan Bank Notes--3.6%
6.015%-6.85%, 2/28/1996-6/13/1996 27,609,678
---------------------------------------------------------------
13,700,000 (a) Federal Home Loan Bank, Discount Notes--1.7%
5.69%-6.38%, 1/19/1996-2/16/1996 13,619,295
---------------------------------------------------------------
26,000,000 (b) Federal Home Loan Bank, Floating Rate Notes--3.4%
5.53%-5.55%, 1/2/1996 25,992,131
---------------------------------------------------------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
25,298,000 (a) Federal Home Loan Mortgage Corp. Discount Notes--3.2%
5.69%-7.13%, 2/8/1996-2/16/1996 25,131,718
---------------------------------------------------------------
26,900,000 Federal National Mortgage Association--3.5%
5.41%-5.91%, 6/28/1996-12/6/1996 26,886,363
---------------------------------------------------------------
51,500,000 (a) Federal National Mortgage Association, Discount Notes--6.6%
5.61%-6.01%, 2/9/1996-4/15/1996 50,785,306
---------------------------------------------------------------
39,500,000 (b) Federal National Mortgage Association, Floating Rate
Notes--5.1%
5.15%-5.49%, 1/2/1996-1/3/1996 39,474,513
---------------------------------------------------------------
68,640,000 (b) Housing & Urban Development, Floating Rate Notes--8.9%
6.11%, 1/2/1996 68,640,000
---------------------------------------------------------------
9,798,990 (b) Export/Import Bank, Floating Rate Note--1.3%
6.32%, 1/3/1996 9,794,134
---------------------------------------------------------------
4,000,000 Student Loan Marketing Association Note--0.5%
6.943%, 2/21/1996 4,000,970
---------------------------------------------------------------
22,000,000 (b) Student Loan Marketing Association, Floating Rate Notes--2.8%
5.20%-5.30%, 1/3/1996 21,994,655
---------------------------------------------------------------
10,700,000 (a) U.S. Treasury Bills--1.3%
5.27%-5.45%, 5/30/1996-6/27/1996 10,436,928
---------------------------------------------------------------
22,000,000 U.S. Treasury Notes--2.9%
6.50%-7.375%, 5/15/1996-9/30/1996 22,146,785
--------------------------------------------------------------- ------------
TOTAL SHORT-TERM OBLIGATIONS 353,448,891
--------------------------------------------------------------- ------------
</TABLE>
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ --------------------------------------------------------------- ------------
<C> <C> <S> <C>
(C) REPURCHASE AGREEMENTS--54.3%
- -----------------------------------------------------------------------------------
$ 26,000,000 Bank of Tokyo Ltd., 5.95%, dated 12/29/1995, due 1/2/1996 $ 26,000,000
---------------------------------------------------------------
26,400,000 Deutsche Bank Government Securities, Inc., 5.93%-5.95%, dated
12/29/1995, due 1/2/1996 26,400,000
---------------------------------------------------------------
19,000,000 First Union Capital Markets Corp., 6.00%, dated 12/29/1995, due
1/2/1996 19,000,000
---------------------------------------------------------------
35,000,000 Fuji Government Securities, Inc., 5.95%, dated 12/29/1995, due
1/2/1996 35,000,000
---------------------------------------------------------------
35,000,000 Goldman, Sachs & Co., 5.94%, dated 12/29/1995, due 1/2/1996 35,000,000
---------------------------------------------------------------
35,000,000 HSBC Securities, Inc., 5.95%, dated 12/29/1995, due 1/2/1996 35,000,000
---------------------------------------------------------------
35,000,000 Merrill Lynch, Pierce, Fenner and Smith, Inc., 6.00%, dated
12/29/1995, due 1/2/1996 35,000,000
---------------------------------------------------------------
35,000,000 Nomura Securities International, Inc., 6.00%, dated 12/29/1995,
due 1/2/1996 35,000,000
---------------------------------------------------------------
125,000,000 PaineWebber Inc., 5.93%-5.95%, dated 12/29/1995, due 1/2/1996 125,000,000
---------------------------------------------------------------
10,000,000 (d) Lehman Brothers, Inc., 5.60%, dated 12/21/1995, due 2/20/1996 10,000,000
---------------------------------------------------------------
24,000,000 (d) Morgan Stanley and Co., Inc., 5.81%, dated 12/28/1995, due
1/11/1996 24,000,000
---------------------------------------------------------------
15,000,000 (d) UBS Securities, Inc., 5.72%, dated 12/21/1995, due 1/16/1996 15,000,000
--------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 420,400,000
--------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(E) $773,848,891
--------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase.
(b) Current rate and next demand date shown.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(d) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days if the creditworthiness of the issuer is
downgraded.
(e) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($773,851,300) at December 31, 1995.
(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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $420,400,000
- -----------------------------------------------------------------
Investments in securities 353,448,891
- ----------------------------------------------------------------- ------------
Total investments in securities, at amortized cost and value $773,848,891
- --------------------------------------------------------------------------------
Income receivable 2,711,899
- --------------------------------------------------------------------------------
Receivable for shares sold 457,056
- -------------------------------------------------------------------------------- ------------
Total assets 777,017,846
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for shares redeemed 438,438
- -----------------------------------------------------------------
Income distribution payable 2,569,481
- -----------------------------------------------------------------
Payable to Bank 60,059
- -----------------------------------------------------------------
Accrued expenses 98,568
- ----------------------------------------------------------------- ------------
Total liabilities 3,166,546
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 773,851,300 shares outstanding $773,851,300
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$773,851,300 / 773,851,300 shares 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, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $49,861,095
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 3,308,383
- --------------------------------------------------------------------
Administrative personnel and services fee 626,051
- --------------------------------------------------------------------
Custodian fees 157,999
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 72,364
- --------------------------------------------------------------------
Directors'/Trustees' fees 15,503
- --------------------------------------------------------------------
Auditing fees 16,759
- --------------------------------------------------------------------
Legal fees 6,300
- --------------------------------------------------------------------
Portfolio accounting fees 112,956
- --------------------------------------------------------------------
Shareholder services fee 2,067,739
- --------------------------------------------------------------------
Share registration costs 20,544
- --------------------------------------------------------------------
Printing and postage 8,068
- --------------------------------------------------------------------
Insurance premiums 12,071
- --------------------------------------------------------------------
Taxes 6,312
- --------------------------------------------------------------------
Miscellaneous 18,686
- -------------------------------------------------------------------- -----------
Total expenses 6,449,735
- --------------------------------------------------------------------
Waiver--
- --------------------------------------------------------------------
Waiver of investment advisory fee $ (995,954)
- ------------------------------------------------------
Waiver of shareholder services fee (1,654,191)
- ------------------------------------------------------ -----------
Total waivers (2,650,145)
- -------------------------------------------------------------------- -----------
Net expenses 3,799,590
- ----------------------------------------------------------------------------------- -----------
Net investment income $46,061,505
- ----------------------------------------------------------------------------------- -----------
</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,
-----------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------
Net investment income $ 46,061,505 $ 39,173,285
- --------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------
Distributions from net investment income (46,061,505) (39,173,285)
- --------------------------------------------------------- --------------- ---------------
SHARE TRANSACTIONS--
- ---------------------------------------------------------
Proceeds from sale of shares 2,288,288,246 3,137,334,559
- ---------------------------------------------------------
Net assets value of shares issued to shareholders in
payment of distributions declared 8,919,702 6,460,619
- ---------------------------------------------------------
Cost of shares redeemed (2,500,462,612) (3,251,369,237)
- --------------------------------------------------------- --------------- ---------------
Change in net assets resulting from share
transactions (203,254,664) (107,574,059)
- --------------------------------------------------------- --------------- ---------------
Change in net assets (203,254,664) (107,574,059)
- ---------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------
Beginning of period 977,105,964 1,084,680,023
- --------------------------------------------------------- --------------- ---------------
End of period $ 773,851,300 $ 977,105,964
- --------------------------------------------------------- --------------- ---------------
</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, 1995
- --------------------------------------------------------------------------------
(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 management investment company. The investment objective of the Trust is
high current income consistent with stability of principal and liquidity.
(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 uses the amortized cost method to value
its portfolio securities in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Trust
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
- --------------------------------------------------------------------------------
maintains security positions such that sufficient liquid assets will be
available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to market
daily and begin earning interest on the settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(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). At
December 31, 1995, capital paid-in aggregated $773,851,300. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 2,288,288,246 3,137,334,559
- -------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 8,919,702 6,460,619
- -------------------------------------------------------------
Shares redeemed (2,500,462,612) (3,251,369,237)
- ------------------------------------------------------------- -------------- --------------
Net change resulting from share transactions (203,254,664) (107,574,059)
- ------------------------------------------------------------- -------------- --------------
</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 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"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. This 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.
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 daily net assets of the Trust for the period. This fee is to
obtain certain services for shareholders and to maintain shareholder accounts.
FSS may voluntarily choose to waive any portion of its fee. FSS can modify or
terminate this voluntary waiver at any time at its sole discretion.
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
- --------------------------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Shareholder
Services Company 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.
PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Trust's
accounting records for which it receives a fee. The fee is based on the level of
the Trust's average daily net assets for the period, plus out-of-pocket
expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
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, 1995, and
the related statement of operations for the year then ended, the statement of
changes in net assets for the periods presented, and the financial highlights
(see page 2 of the prospectus) for 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, 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 Short-Term U.S. Government Trust as of December 31, 1995, the results
of its operations for the year then ended, the changes in its net assets for the
periods presented, and the financial highlights for the periods presented, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania,
February 5, 1996
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 8600
Trust Company Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
Arthur Andersen LLP 2100 One PPG Place
Pittsburgh, PA 15222
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FEDERATED SHORT-TERM
U.S. GOVERNMENT TRUST
PROSPECTUS
An Open-End, Diversified Management
Investment Company
Prospectus dated February 29, 1996
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
CUSIP 313905101
8020102A (2/96)
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
29, 1996. This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated February 29, 1996
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 1
Regulatory Compliance 3
FEDERATED SHORT-TERM U.S. GOVERNMENT
TRUST MANAGEMENT 3
The Funds 7
Share Ownership 7
Trustee Compensation 7
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
Investment Adviser 8
Advisory Fees 8
State Expense Limitations 9
BROKERAGE TRANSACTIONS 9
OTHER SERVICES 9
Trust Administration 9
Custodian and Portfolio Recordkeeper 9
Transfer Agent 10
Independent Public Accountants 10
SHAREHOLDER SERVICES 10
DETERMINING NET ASSET VALUE 10
Table of Contents
REDEMPTION IN KIND 10
MASSACHUSETTS PARTNERSHIP LAW 11
THE TRUST'S TAX STATUS 11
PERFORMANCE INFORMATION 11
Yield 11
Effective Yield 11
Total Return 11
Performance Comparisons 12
ABOUT FEDERATED INVESTORS 12
Mutual Fund Market 12
Institutional Clients 12
Trust Organizations 13
Broker/Dealers and Bank Broker/Dealer
Subsidiaries 13
II
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may not be changed by
the Board of Trustees without shareholder approval.
ACCEPTABLE INVESTMENTS
Some of the short-term U.S. government securities the Trust may purchase carry
variable interest rates. These securities have a rate of interest subject to
adjustment at least annually. This adjusted interest rate is ordinarily tied
to some objective standard, such as the 91-day U.S. Treasury bill rate.
Variable interest rates will reduce the changes in the market value of such
securities from their original purchase prices. Accordingly, the potential
for capital appreciation or capital depreciation should not be greater than
that of fixed interest rate U.S. government securities having maturities equal
to the interest rate adjustment dates of the variable rate U.S. government
securities. The Trust may purchase variable rate U.S. government securities
upon the determination by the Board of Trustees that the interest rate as
adjusted will cause the instrument to have a current market value that
approximates its par value on the adjustment date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Trust. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Trust 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 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 may be necessary for clearance
of purchase and sales of securities.
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 pruposes 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 securities except that it may enter into 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.
For purposes of the above limitations, the Trust considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings association having capital, surplus, and undivided profits in excess
of $100,000,000 at the time of investment to be "cash items." Except with
respect to borrowing money, if a percentage limitation is adhered to at the
time of investment, a later increase or decrease in percentage resulting from
any change in value or net assets will not result in a violation of such
limitation.
The Trust did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present intent
to do so during the coming fiscal year.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply
with applicable laws and regulations, including the provisions of and
regulations under the Investment Company Act of 1940. In particular, the Trust
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Trust will determine the effective maturity of its
investments according to Rule 2a-7. The Trust may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, 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. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director, Trustee, or Managing General Partner of
the Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director, 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.
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, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
Glen R. Johnson *
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp. and Federated Administrative Services.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 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.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director, Trustee or Managing General Partner of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management Center;
Director, Trustee, or Managing General Partner of the Funds; President
Emeritus, University of Pittsburgh; founding Chairman, National Advisory
Council for Environmental Policy and Technology and Federal Emergency
Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director, Trustee, or Managing General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Administrative Services, Federated Shareholder Services
Company, and Federated Shareholder Services; Director, Federated Services
Company; President or Executive 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 Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee,
Federated Shareholder Services Company; Director, Federated Services Company;
President and Trustee, Federated Shareholder Services; Director, Federated
Securities Corp.; Executive Vice President and Secretary of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated Securities
Corp.; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
THE FUNDS
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
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 Government Money Trust; Blanchard Funds; Blanchard
Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG
Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FTI Funds;
Federated ARMs Fund; Federated Equity Funds; Federated GNMA Trust; Federated
Government Trust; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock
Trust; Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated
U.S. Government Bond Fund; Federated U.S. Government Securities Fund: 1-3
Years; Federated U.S. Government Securities Fund: 3-5 Years; Federated U.S.
Government Securities Fund: 5-10 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; 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; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO
Monument Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust
for Financial Institutions; Trust For Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; The
Virtus Funds; 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 5, 1996, the following shareholder(s) of record owned 5% or more
of the outstanding shares of the Trust: Leeds & Co., New York, New York, owned
approximately 34,053,883 (5.07%) shares.
TRUSTEE COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue, $ 0 $-0- for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex
Thomas G. Bigley,++ $ 1,860 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy, $ 2,001 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland, $ 2,001 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd, $ 2,001 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D., $ 1,860 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr., $ 2,001 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Glen R. Johnson, $ 0 $-0- for the Trust and
President and Trustee 9 other investment companies in the Fund
Complex
Peter E. Madden, $ 1,860 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer, $ 1,860 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr., $ 1,860 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar, $ 1,860 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts, $ 1,860 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended December 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.
++ Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Trust's investment adviser is Federated 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, 1995, 1994 and 1993, the adviser earned $3,308,383, $4,025,146,
and $4,074,942, respectively, of which $995,954, $1,078,279, and $484,73,
respectively, were waived.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets, 2% per
year of the next $70 million of average net assets, and 1-1/2% per year of
the remaining average net assets, the adviser will reimburse the Trust for
its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the amount
of the excess, subject to an annual adjustment. If the expense limitation
is exceeded, the amount to be reimbursed by the adviser will be limited,
in any single fiscal year, by the amount of the investment advisory fees.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better
price and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Trust or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Trust and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship
to the value of the brokerage and research services provided. During the fiscal
year(s) ended December 31, 1995, 1994, and 1993, the Trust paid no brokerage
commissions.
Although investment decisions for the Trust are made independently from those
of the other accounts managed by the adviser, investments of the type the Trust
may make may also be made by those other accounts. When the Trust and one or
more other accounts managed by the adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by the adviser to be equitable to
each. In some cases, this procedure may adversely affect the price paid or
received by the Trust or the size of the position obtained or disposed of by
the Trust. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated 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, 1995, 1994, and 1993, the Administrators earned
$626,051, $743,194, and $593,548, 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.
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 Shareholder Services Company maintains all
necessary shareholder records. For its services, the transfer agent receives a
fee based on the number of shareholder accounts.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Trust are Arthur Andersen LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES
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 balances; answering routine client
inquiries; and assisting clients in changing dividend options, account
designations, and addresses. By adopting the Shareholder Services Agreement,
the Trustees expect 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 year ending December 31, 1995,
payments in the amount of $2,067,739 were made pursuant to the Shareholder
Services Agreement, $1,654,191 of which was paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Trust computed by dividing the annualized daily income on the Trust's portfolio
by the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Trust's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into
account current market conditions and the Trust's investment objective. The
procedures include monitoring the relationship between the amortized cost value
per share and the net asset value per share based upon available indications of
market value. The Trustees will decide what, if any, steps should be taken if
there is a difference of more than 0.5 of 1% between the two values. The
Trustees will take any steps they consider appropriate (such as redemption in
kind or shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Trust's net asset value, whichever is less, for any one shareholder within
a 90-day period. Any redemption beyond this amount will also be in cash unless
the Trustees determine that further payments should be in kind. In such cases,
the Trust will pay all or a portion of the remainder of the redemption in
portfolio instruments valued in the same way as the Trust determines net asset
value. The portfolio instruments will be selected in a manner that the Trustees
deem fair and equitable. Redemption in kind is not as liquid as a cash
redemption. If redemption is made in kind, shareholders who sell these
securities could receive less than the redemption value and could incur certain
transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in
each agreement, obligation, or instrument the Trust or its Trustees enter into
or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as
a shareholder will occur only if the Trust itself cannot meet its obligations
to indemnify shareholders and pay judgments against them.
THE TRUST'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Trust must, among other requirements: derive at least 90% of
its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its net
income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of cash
flow. To the extent that financial institutions and broker/dealers charge fees
in connection with services provided in conjunction with an investment in
shares of the Trust, the performance will be reduced for those shareholders
paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
The Trust's yield for the seven-day period ended December 31, 1995, was 5.40%
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, 1995, was 5.55%
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.
The Trust's average annual total returns for the one- and five- year periods
ended December 31, 1995, and for the period from April 16, 1987 (date of
initial public investment), through December 31, 1995, were 5.72%, 4.44% and
5.95%, respectively.
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.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected
in its investment decision making-structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost
method of accounting for valuing shares of money market funds, a principal
means used by money managers today to value money market fund shares. Other
innovations include the first institutional tax-free money market fund. As of
December 31, 1995, Federated Investors managed more than $31 billion in assets
across approximately 43 money market funds, including 17 government, 8 prime
and 18 municipal with assets approximating $17 billion, $7.4 billion and $6.6
billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $2 trillion to the more than 5,500 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios.
The marketing effort to trust clients is headed by Mark R. Gensheimer,
Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
8020102B (2/96)
CUSIP 313905101
