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 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
28, 1998, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Trust, contact the Trust
at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Trust is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated February 28, 1998
TABLE OF CONTENTS
Summary of Trust Expenses 1
Financial Highlights 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment Limitations 4
Trust Information 4
Management of the Trust 4
Distribution of Shares 5
Administration of the Trust 5
Net Asset Value 5
How to Purchase Shares 6
Purchasing Shares by Wire 6
Purchasing Shares by Check 6
Subaccounting Services 6
How to Redeem Shares 6
Redeeming Shares by Telephone 6
Redeeming Shares by Mail 7
Account and Share Information 7
Dividends 7
Capital Gains 7
Account Activity 7
Accounts with Low Balances 7
Voting Rights 7
Tax Information 7
Federal Income Tax 7
State and Local Taxes 7
Performance Information 8
Financial Statements 9
Report of Independent Public Accountants 16
<TABLE>
<CAPTION>
SUMMARY OF TRUST EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> 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) 0.27%
12b-1 Fee None
Total Other Expenses 0.19%
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 shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.79% 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.
EXAMPLE
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.
1 Year $ 5
3 Years $15
5 Years $26
10 Years $58
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Independent Public Accountants on page 16.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
BEGINNING OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS
Net investment income 0.05 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09 0.07
LESS DISTRIBUTIONS
Distributions from net (0.05) (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07)
investment income
NET ASSET VALUE, END OF $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
PERIOD
TOTAL RETURN(A) 5.24% 5.10% 5.72% 3.99% 2.95% 3.64% 5.93% 8.11% 9.17% 7.47%
RATIOS TO AVERAGE NET
ASSETS
Expenses 0.46% 0.46% 0.46% 0.45% 0.46% 0.46% 0.46% 0.46% 0.47% 0.48%
Net investment income 5.10% 4.99% 5.57% 3.89% 2.92% 3.58% 5.80% 7.82% 8.80% 7.39%
Expense 0.33% 0.33% 0.32% 0.11% 0.05% 0.03% 0.03% 0.04% 0.04% 0.08%
waiver/reimbursement(b)
SUPPLEMENTAL DATA
Net assets, end of $489,292 $609,589 $773,851 $977,106 $1,084,680 $1,012,509 $959,881 $1,091,158 $923,088 $564,343
period (000 omitted)
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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 portfolio investing only in short-term U.S.
government securities. A minimum initial investment of $25,000 over 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
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 diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing 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 investment 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;
* notes, bonds, and discount notes issued or guaranteed by U.S.
government agencies and instrumentalities supported by the full faith
and credit of the United States;
* notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of
the U.S. government are backed by the full faith and credit of the U.S.
Treasury. No assurances can be given that the U.S. government will provide
financial support to other agencies or instrumentalities, since it is not
obligated to do so. These instrumentalities are supported by:
* the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
* discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
* the credit of the agency or instrumentality.
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.
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
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 0.40% of the
Trust's average daily net assets. The adviser may voluntarily choose to waive a
portion of its fee or reimburse other expenses of the Trust, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated 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 $120 billion invested across more than 300 funds
under management and/or administration by its subsidiaries, as of December 31,
1997, Federated Investors is one of the largest mutual fund investment managers
in the United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds are
presently at work in and through approximately 4,000 financial institutions
nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Trust; prohibit purchasing securities in initial public
offerings; and prohibit taking profits on securities held for less than sixty
days. Violations of the codes are subject to review by the Trustees, and could
result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the
Trust. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
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 the average daily net asset value of its
shares, 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 clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will be
determined from time to time by the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services Agreement,
Federated Securities Corp. and Federated Shareholder Services, from their own
assets, may pay financial institutions supplemental fees for the performance of
substantial sales services, distribution-related support services, or
shareholder services. The support may include sponsoring sales, educational, and
training seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes of the
Trust. Such assistance will be predicated upon the amount of shares the
financial institution sells or may sell, and/or upon the type and nature of
sales or marketing support furnished by the financial institution. Any payments
made by the distributor may be reimbursed by the Trust's investment adviser or
its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Trust at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors specified below:
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
The Trust attempts to stabilize the net asset value of 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, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days 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) in order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street Bank
and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to: Federated
Short-Term U.S. Government Trust; Trust Number (this number can be found on the
account statement or by contacting the Trust); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. 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. Please include an account number
on the check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
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.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Trust computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES 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 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 determines it necessary to
terminate or modify the telephone redemption privilege, shareholders will be
promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to: Federated
Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600. If share
certificates have been issued, they should be sent unendorsed with the written
request by registered or certified mail to the address noted above.
The written request should state: the Trust name; 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
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.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account activity,
including dividends paid. The Trust will not issue share certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account, except accounts maintained by retirement plans,
and pay the proceeds to the shareholder if the account balance falls below a
required minimum value of $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
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Trust advertises its yield, effective yield and total
return.
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.
PORTFOLIO OF INVESTMENTS
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM OBLIGATIONS--30.1%
$ 2,000,000 Federal Farm Credit Bank, 5.600%, 10/1/1998 $ 1,996,673
14,600,000 (a)Federal Home Loan Bank System Discount Notes, 5.415% - 14,412,737
5.570%, 3/4/1998 - 5/15/1998
4,000,000 (b)Federal Home Loan Bank System Floating Rate Notes, 5.696%, 3,999,385
3/19/1998
17,500,000 Federal Home Loan Bank System, 5.700% - 6.025%, 3/24/1998 - 17,495,147
12/30/1998
7,000,000 (b)Federal Home Loan Mortgage Corp. Floating Rate Notes, 6,997,430
5.468%, 1/20/1998
4,500,000 Federal Home Loan Mortgage Corp., 5.715% - 5.840%, 3/17/1998 4,499,683
- 4/8/1998
30,700,000 (a)Federal National Mortgage Association Discount Notes, 30,081,602
5.370% - 5.555%, 2/24/1998 - 10/8/1998
31,000,000 (b)Federal National Mortgage Association Floating Rate
Notes, 30,990,719 5.909% - 6.090%, 1/5/1998 - 1/6/1998
18,100,000 Federal National Mortgage Association, 5.630% - 6.000%, 18,092,254
3/13/1998 - 8/14/1998
7,000,000 (b)Student Loan Marketing Association Floating Rate Notes, 6,997,216
5.929%, 1/6/1998
3,500,000 Student Loan Marketing Association, 5.830% - 5.880%, 3,500,257
10/29/1998 - 12/10/1998
8,000,000 United States Treasury Notes, 6.125% - 6.250%, 5/15/1998 - 8,012,510
7/31/1998
Total Short-Term Obligations 147,075,613
(C)REPURCHASE AGREEMENTS--69.8%
15,000,000 ABN AMRO Chicago Corp., 7.125%, dated 12/31/1997, due 15,000,000
1/2/1998
15,000,000 Bear, Stearns and Co., 6.900%, dated 12/31/1997, due 1/2/1998 15,000,000
8,000,000 Deutsche Bank Government Securities, Inc., 7.450%, dated 8,000,000
12/31/1997, due 1/5/1998
85,000,000 Fuji Government Securities, Inc., 6.800%, dated 12/31/1997, 85,000,000
due 1/2/1998
11,000,000 Goldman Sachs Group, LP, 8.000%, dated 12/31/1997, due 11,000,000
1/2/1998
15,000,000 HSBC Securities, Inc., 6.800%, dated 12/31/1997, due 1/2/1998 15,000,000
60,000,000 PaineWebber Group, Inc., 6.800%, dated 12/31/1997, due 60,000,000
1/2/1998
15,000,000 Salomon Smith Barney Holdings, Inc., 6.800%, dated 15,000,000
12/31/1997, due 1/2/1998
19,700,000 Swiss Bank Capital Markets, 6.600%, dated 12/31/1997, due 19,700,000
1/2/1998
18,000,000 (d)Chase Government Securities, Inc., 5.630%, dated 18,000,000
11/13/1997, due 1/12/1998
12,000,000 (d)Goldman Sachs Group, LP, 5.600%, dated 10/28/1997, due 12,000,000
1/26/1998
10,000,000 (d)Goldman Sachs Group, LP, 5.620%, dated 11/6/1997, due 10,000,000
1/5/1998
5,000,000 (d)Lehman Brothers, Inc., 5.840%, dated 12/5/1997, due 5,000,000
1/5/1998
</TABLE>
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C) REPURCHASE AGREEMENTS--CONTINUED
$ 11,000,000 (d)Morgan Stanley Group, Inc., 5.600%, dated 10/29/1997, due $ 11,000,000
1/27/1998
21,000,000 (d)Swiss Bank Capital Markets, 5.600%, dated 10/20/1997, due 21,000,000
1/20/1998
21,000,000 (d)UBS Securities, Inc., 5.630%, dated 11/13/1997, due 21,000,000
1/12/1998
Total Repurchase Agreements 341,700,000
Total Investments (at amortized cost)(e) $ 488,775,613
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase.
(b) Current rate and next reset 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.
(e) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($489,292,169) at December 31, 1997.
The following acronym is used throughout this portfolio:
LP --Limited Partnership
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 341,700,000
Investments in securities 147,075,613
Total investments in securities, at amortized cost and value $ 488,775,613
Cash 339,008
Income receivable 1,795,542
Receivable for shares sold 16,615
Total assets 490,926,778
LIABILITIES:
Income distribution payable 1,557,247
Accrued expenses 77,362
Total liabilities 1,634,609
Net Assets for 489,292,169 shares outstanding $ 489,292,169
NET ASSET VALUE, OFFERING PRICE, AND REDEMPTION PROCEEDS PER
SHARE:
$489,292,169 / 489,292,169 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 29,392,563
EXPENSES:
Investment advisory fee $ 2,113,857
Administrative personnel and services fee 398,950
Custodian fees 63,307
Transfer and dividend disbursing agent fees and 74,265
expenses
Directors'/Trustees' fees 16,503
Auditing fees 14,544
Legal fees 6,112
Portfolio accounting fees 119,340
Shareholder services fee 1,321,160
Share registration costs 19,421
Printing and postage 10,332
Insurance premiums 5,056
Taxes 6,068
Miscellaneous 9,098
Total expenses 4,178,013
Waivers--
Waiver of investment advisory fee $ (666,937)
Waiver of shareholder services fee (1,056,928)
Total waivers (1,723,865)
Net expenses 2,454,148
Net investment income $ 26,938,415
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 26,938,415 $ 30,352,600
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (26,938,415) (30,352,600)
SHARE TRANSACTIONS--
Proceeds from sale of shares 1,781,376,018 1,768,232,818
Net asset value of shares issued to shareholders in payment 7,242,227 7,281,495
of distributions declared
Cost of shares redeemed (1,908,915,031) (1,939,776,658)
Change in net assets resulting from share transactions (120,296,786) (164,262,345)
Change in net assets (120,296,786) (164,262,345)
NET ASSETS:
Beginning of period 609,588,955 773,851,300
End of period $ 489,292,169 $ 609,588,955
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
DECEMBER 31, 1997
ORGANIZATION
Federated Short-Term U.S. Government Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. The investment objective of the Trust is high
current income consistent with stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Trust's use of the amortized cost method to value its portfolio securities
is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Trust to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
FEDERAL TAXES
It is the Trust's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses, and revenues reported in
the financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
December 31, 1997, capital paid-in aggregated $489,292,169. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
<S> <C> <C>
Shares sold 1,781,376,018 1,768,232,818
Shares issued to shareholders in payment of distributions 7,242,227 7,281,495
declared
Shares redeemed (1,908,915,031) (1,939,776,658)
Net change resulting from share transactions (120,296,786) (164,262,345)
</TABLE>
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 0.40% 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 Services Company ("FServ"), under the Administrative Services
Agreement, provides the Trust with administrative personnel and services. The
fee paid to FServ is based on the level of average aggregate daily net assets of
all funds advised by subsidiaries of Federated Investors 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 0.25% of average daily net assets
of the Trust for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. FSS can modify or terminate
this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary, Federated Shareholder Services Company ("FSSC")
serves as transfer and dividend disbursing agent for the Trust. The fee paid to
FSSC is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Trust's accounting records, for which it receives a fee. The
fee is based on the level of the Trust's average daily net assets for the
period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
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 of investments, as of December 31, 1997, and
the related statement of operations for the year then ended, and the statement
of changes in net assets, and the financial highlights (see page 2 of the
prospectus) for 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, 1997, by correspondence with the custodian and brokers. As to
confirmation replies not received, we carried out other alternative auditing
procedures. 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, 1997, the results
of its operations for the year then ended, and the changes in its net assets and
its financial highlights for the periods presented, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Pittsburgh, Pennsylvania
February 11, 1998
[Graphic]
Federated Short-Term U.S. Government Trust
PROSPECTUS
FEBRUARY 28, 1998
An Open-End Management Investment Company
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Research
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
2100 One PPG Place
Pittsburgh, PA 15222
Federated Securities Corp., Distributor
1-800-245-7400
www.federatedinvestors.com
Cusip 313905101
8020102A (2/98)
[Graphic]
FEDERATED SHORT-TERM U.S. GOVERNMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Federated Short-Term U.S. Government Trust (the "Trust") dated February 28,
1998. This Statement is not a prospectus. You may request a copy of a prospectus
or a paper copy of this Statement, if you have received it electronically, free
of charge by calling 1-800-341-7400.
FEDERATED INVESTORS FUNDS
5800 CORPORATE DRIVE
PITTSBURGH, PA 15237-7000
Statement dated February 28, 1998
[Graphic]
Federated Securities Corp., Distributor
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
1-800-341-7400
www.federatedinvestors.com
Cusip 313905101
8020102B (2/98)
[Graphic]
TABLE OF CONTENTS
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
Selling Short and Buying on Margin 1
Issuing Senior Securities and Borrowing Money 2
Pledging Assets 2
Lending Cash or Securities 2
Acquiring Securities 2
Investing in Commodities 2
Investing in Real Estate 2
Underwriting 2
Concentration of Investments 2
Diversification of Investments 2
Investing in Illiquid Securities 2
Investing in Securities of Other Investment Companies 2
Investing for Control 3
Regulatory Compliance 3
FEDERATED SHORT-TERM U.S. GOVERNMENT
TRUST MANAGEMENT 3
Share Ownership 6
Trustee Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
Investment Adviser 7
Advisory Fees 7
BROKERAGE TRANSACTIONS 8
OTHER SERVICES 8
Trust Administration 8
Custodian and Portfolio Accountant 8
Transfer Agent 8
Independent Public Accountants 8
Shareholder Services 8
DETERMINING NET ASSET VALUE 9
REDEMPTION IN KIND 9
MASSACHUSETTS PARTNERSHIP LAW 9
THE TRUST'S TAX STATUS 9
PERFORMANCE INFORMATION 10
Yield 10
Effective Yield 10
Total Return 10
Performance Comparisons 10
Economic and Market Information 11
ABOUT FEDERATED INVESTORS 11
Mutual Fund Market 11
Institutional Clients 11
Bank Marketing 11
Broker/Dealers and Bank Broker/Dealer Subsidiaries 11
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below 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 investment policy which cannot be changed without
shareholder approval, the Trust invests only in short-term U.S. government
securities. 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 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; marked to market daily; and maintained until
the transaction is settled. The Trust does not intend to engage in when-issued
and delayed delivery transactions to an extent that would cause the segregation
of more than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust believes that under the regular procedures normally in effect for
custody of the Trust's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Trust and allow
retention or disposition of such securities. The Trust will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers, which are deemed by the Trust's adviser to be
creditworthy pursuant to guidelines established by the Trustees.
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 purposes and then
only in amounts not in excess of 5% of the value of its total assets or in an
amount up to one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately selling
portfolio instruments. Any such borrowings would not be collateralized.
PLEDGING ASSETS
The Trust will not pledge 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
purchasing or holding U.S. government securities, including repurchase
agreements, permitted by its investment objective and policies.
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 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 COMMODITIES
The Trust will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Trust will not purchase or sell real estate.
UNDERWRITING
The Trust will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection with
the sale of securities in accordance with its investment objective, policies,
and limitations.
CONCENTRATION OF INVESTMENTS
The Trust will not invest 25% or more of the value of its total assets in any
one industry. However, the Trust may invest 25% or more of the value of its
total assets in cash, cash items, or securities issued or guaranteed by the
government of the United States, or its agencies, or instrumentalities and
repurchase agreements collateralized by such U.S. government securities. The
U.S. government is not considered to be an industry.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Trust will not purchase securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the government of the United
States, or its agencies, or instrumentalities and repurchase agreements
collateralized by such U.S. government securities) if as a result more than 5%
of the value of its total assets would be invested in the securities of that
issuer, or if it would own more than 10% of the outstanding voting securities of
that issuer.
INVESTING IN ILLIQUID SECURITIES
The Trust will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees and repurchase agreements
providing for settlement in more than seven days after notice.
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 FOR CONTROL
The Trust will not invest in securities of a company for the purpose of
exercising control or management.
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 or Trustee of the
Funds. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
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.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica &
Murray; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
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 Shareholder Services Company and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
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; 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, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of the
Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies: 111 Corcoran Funds; Automated Government Money
Trust; Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily
Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund, Inc.;
Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity
Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S. Government
Securities, Inc.; Federated GNMA Trust; Federated Government Income Securities,
Inc.; Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Institutional Trust; Federated Insurance
Series; Federated Investment Portfolios; Federated Investment Trust; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc.1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Obligations Trust II; Money Market Trust; Municipal
Securities Income Trust; Newpoint Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Virtus Funds; Trust
for Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; WCT Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust.
As of February 3, 1998, the following shareholder of record owned 5% or more of
the outstanding shares of the Trust: Alpha and Company, Welch, WV, owned
approximately 22,894,858 (5.26%) shares.
TRUSTEE COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <C>
John F. Donahue $0 $0 for the Trust and 56 other investment
Chairman and Trustee companies in the Fund Complex
Glen R. Johnson $0 $0 for the Trust and 8 other investment
President and Trustee companies in the Fund Complex
Thomas G. Bigley $1,448 $111,222 for the Trust and 56 other investment
Trustee companies in the Fund Complex
John T. Conroy, Jr. $1,593 $122,362 for the Trust and 56 other investment
Trustee companies in the Fund Complex
William J. Copeland $1,593 $122,362 for the Trust and 56 other investment
Trustee companies in the Fund Complex
James E. Dowd $1,593 $122,362 for the Trust and 56 other investment
Trustee companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,448 $111,222 for the Trust and 56 other investment
Trustee companies in the Fund Complex
Edward L. Flaherty, Jr. $1,593 $122,362 for the Trust and 56 other investment
Trustee companies in the Fund Complex
Peter E. Madden $1,448 $111,222 for the Trust and 56 other investment
Trustee companies in the Fund Complex
John E. Murray, Jr. $1,448 $111,222 for the Trust and 56 other investment
Trustee companies in the Fund Complex
Wesley W. Posvar $1,448 $111,222 for the Trust and 56 other investment
Trustee companies in the Fund Complex
Marjorie P. Smuts $1,448 $111,222 for the Trust and 56 other investment
Trustee companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended December 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The 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, 1997, 1996, and 1995, the adviser earned $2,113,857, $2,431,793, and
$3,308,383, respectively, of which $666,937, $775,483, and $995,954,
respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Trust or to the adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the adviser or its affiliates in advising the Trust and
other accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The adviser and its affiliates exercise
reasonable business judgment in selecting brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided. During the fiscal
years ended December 31, 1997, 1996, and 1995, the Trust paid no brokerage
commissions.
Although investment decisions for the Trust are made independently from those of
the other accounts managed by the adviser, investments of the type the Trust may
make may also be made by those other accounts. When the Trust and one or more
other accounts managed by the adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Trust or the size of the position obtained or disposed of by the Trust. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in the
prospectus. From March 1, 1994 to March 1, 1996, Federated Administrative
Services, a subsidiary of Federated Investors, served as the Trust's
Administrator. For purposes of this Statement of Additional Information,
Federated Services Company and Federated Administrative Services may hereinafter
collectively be referred to as the "Administrators." For the fiscal years ended
December 31, 1997, 1996, and 1995, the Administrators earned $398,950, $459,537,
and $626,051, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the securities
and cash of the Trust. Federated Services Company, Pittsburgh, PA, provides
certain accounting and recordkeeping services with respect to the Trust's
portfolio investments. The fee paid for this service is based upon the level of
the Trust's average net assets for the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records. For
its services, the transfer agent receives a fee based on the 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
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 ended December 31, 1997, the Trust earned shareholder
service fees in the amount of $1,321,160, of which $246,232 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;
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, 1997, was 5.33%.
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, 1997, was 5.48%.
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-year and five-year periods
ended December 31, 1997, and for the period from April 16, 1987 (date of initial
public investment) through December 31, 1997, were 5.24%, 5.35%, and 5.80%,
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:
* Lipper Analytical Services, Inc., ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
* IBC/Donoghue's Money Fund Report publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication reports
monthly and 12-month-to-date investment results for the same money funds.
* Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Advertising and other promotional literature may include charts, graphs, and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging, and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial, and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by portfolio managers and their views and analysis on how such
developments could affect the funds. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected in
its investment decision making --structured, straightforward, and consistent.
This has resulted in a history of competitive performance with a range of
competitive investment products that have gained the confidence of thousands of
clients and their customers.
The company's disciplined security selection process is firmly rooted in sound
methodologies backed by fundamental and technical research. Investment decisions
are made and executed by teams of portfolio managers, analysts, and traders
dedicated to specific market sectors. These traders handle trillions of dollars
in annual trading volume.
In the money market sector, Federated Investors gained prominence in the mutual
fund industry in 1974 with the creation of the first institutional money market
fund. Simultaneously, the company pioneered the use of the amortized cost method
of accounting for valuing shares of money market funds, a principal means used
by money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1997, Federated managed more than $63.1 billion in assets across 51 money market
funds, including 18 government, 11 prime, and 22 municipal with assets
approximating $35 billion, $17.1 billion, and $10.9 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors' equity
and high-yield corporate bond management while William D. Dawson, Executive Vice
President, oversees Federated Investors' domestic fixed-income management. Henry
A. Frantzen, Executive Vice President, oversees the management of Federated
Investors' international and global
portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $4.4 trillion to the more than 6,700 funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of approximately 900 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than 1,600
banks and trust organizations. Virtually all of the trust divisions of the top
100 bank holding companies use Federated funds in their clients' portfolios. The
marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice
President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwidewe have over 2,200 broker/dealer and bank broker/dealer relationships
across the countrysupported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President, Federated
Securities Corp.
* Source: Investment Company Institute
