U.S. TREASURY CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
The Institutional Service Shares of U.S. Treasury Cash Reserves (the "Fund")
offered by this prospectus represent interests in a diversified portfolio of
Federated Government Trust (the "Trust"), an open-end management investment
company (a mutual fund) investing in short-term U.S. Treasury obligations to
achieve 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 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 FUND ATTEMPTS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE
THAT THE FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated October 30,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information or make
inquiries about the Fund, contact the Fund at the address listed on the back of
this prospectus.
The Fund aims to provide institutional investors with a cost-effective,
administratively convenient, highly liquid, cash equivalent vehicle that can be
integrated into an existing or contemplated cash management system. The Fund
will report changes in principal balances and monthly income distributions in a
format that is compatible with all major trust operations systems presently in
use.
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 October 30, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 2
When-Issued and Delayed
Delivery Transactions 2
Investment Limitations 3
Regulatory Compliance 3
TRUST INFORMATION 3
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Management of the Trust 3
Board of Trustees 3
Investment Adviser 3
Advisory Fees 4
Adviser's Background 4
Distribution of Shares 4
Distribution and Shareholder
Services Plans 4
Other Payments to Financial
Institutions 5
Administration of the Fund 5
Administrative Services 5
Custodian 5
Transfer Agent and Dividend
Disbursing Agent 5
Legal Counsel 5
Independent Auditors 6
Expenses of the Fund and Institutional
Service Shares 6
NET ASSET VALUE 6
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INVESTING IN THE FUND 6
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Share Purchases 6
By Wire 7
By Mail 7
Minimum Investment Required 7
Cash Sweep Program 7
Participating Depository Institutions 7
What Shares Cost 7
Subaccounting Services 8
Certificates and Confirmations 8
Dividends 8
Capital Gains 8
REDEEMING SHARES 8
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Telephone Redemption 8
Written Requests 9
Signatures 9
Receiving Payment 9
Accounts with Low Balances 10
SHAREHOLDER INFORMATION 10
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Voting Rights 10
Massachusetts Partnership Law 10
TAX INFORMATION 10
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Federal Income Tax 10
State and Local Taxes 11
Pennsylvania Corporate and
Personal Property Taxes 11
PERFORMANCE INFORMATION 11
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OTHER CLASSES OF SHARES 12
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FINANCIAL HIGHLIGHTS 13
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FINANCIAL STATEMENTS 14
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS 20
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ADDRESSES 21
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SUMMARY OF FUND EXPENSES
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<TABLE>
INSTITUTIONAL SERVICE SHARES
SHAREHOLDER TRANSACTION EXPENSES
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable)................................ None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)...................................................... 0.00%
12b-1 Fee(2).......................................................................... 0.00%
Total Other Expenses (after expense reimbursement).................................... 0.45%
Shareholder Services Fee.......................................................... 0.25%
Total Institutional Service Shares Operating Expenses(3)..................... 0.45%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver 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 Institutional Service Shares have no present intention of paying or
accruing the 12b-1 fee during the period ending April 30, 1995. If the
Institutional Service Shares were paying or accruing the 12b-1 fee, the Class
would be able to pay up to 0.25% of its average daily net assets for the 12b-1
fee. See "Trust Information."
(3) The Total Institutional Service Shares Operating Expenses are estimated to
be 0.88% absent the anticipated voluntary waiver of the management fee and the
anticipated voluntary reimbursement of certain other operating expenses.
* Total Institutional Service Shares Operating Expenses are estimated based on
average expenses expected to be incurred during the period ending April 30,
1995. During the course of this period, expenses may be more or less than the
average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF INSTITUTIONAL SERVICE SHARES OF
THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN THE FUND" AND
"TRUST INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE
SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
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<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual
return and (2) redemption at the end of each time period.............................. $5 $14
</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.
The information set forth in the foregoing table and example relates only to
Institutional Service Shares of the Fund. The Fund also offers another class of
shares called Institutional Shares. Institutional Service Shares and
Institutional Shares are subject to certain of the same expenses, however,
Institutional Shares are not subject to a 12b-1 fee. See "Other Classes of
Shares."
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated December 7, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. With respect to this Fund, as of the date of this
prospectus, the Trustees have established two classes of shares know as
Institutional Service Shares and Institutional Shares. This prospectus relates
only to Institutional Service Shares ("Shares") of the Fund. The Fund is
designed primarily 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 participating in a professionally managed, diversified
portfolio limited to short-term U.S. Treasury obligations. The Fund is also
designed for customers of institutional investors. A minimum initial investment
of $25,000 over a 90-day period is required.
The Fund 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 Fund is current income consistent with stability
of principal and liquidity. This investment objective cannot be changed without
approval of shareholders. While there is no assurance that the Fund will achieve
its investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of only
short-term U.S. Treasury obligations which are issued by the U.S. government and
are fully guaranteed as to payment of principal and interest by the United
States. Unless indicated otherwise, the investment policies may be changed by
the Trustees without approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests only in U.S. Treasury obligations
maturing in thirteen months or less. The average maturity of the U.S. Treasury
obligations in the Fund's portfolio, computed on a dollar-weighted basis, will
be 90 days or less.
The Fund will limit its investments to U.S. Treasury obligations, the interest
on which is exempt from personal income tax in the various states if owned
directly.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
Treasury obligations on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. Settlement dates may be a
month or more after entering into these transactions, and the market values for
the securities
purchased may vary from the purchase prices. Accordingly, the Fund may pay more
or less than the market value of the securities on the settlement date. The Fund
may dispose of a commitment prior to settlement if the Adviser deems it
appropriate to do so. In addition, the Fund 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 Fund may realize short-term profits or losses upon the sale of such
commitments. The Fund engages in when-issued and delayed delivery transactions
only for the purpose of acquiring portfolio securities consistent with the
Fund's investment objective and policies, not for investment leverage. In
when-issued and delayed delivery transactions, the Fund relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Fund to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not borrow money or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its total
assets and pledge up to 10% of the value of its total assets to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not invest more than 10% of its net assets in illiquid
obligations.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments according to Rule 2a-7. The Fund may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the "Trustees").
The Trustees are responsible for managing the business affairs of the Trust and
for exercising all the powers of the Trust, except those reserved for the
shareholders. The Executive Committee of the Board of Trustees handles the
Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Management, the Fund's
investment adviser (the "Adviser"), subject to direction by the Trustees. The
Adviser continually conducts investment research
and supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to .40 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver
of its advisory fee at any time at its sole discretion. This does not
include reimbursement to the Fund of any expenses incurred by shareholders
who use the transfer agent's subaccounting facilities. The Adviser has also
undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for Institutional
Service Shares of the Fund. It is a Pennsylvania corporation organized on
November 14, 1969, and is the principal distributor for a number of investment
companies. Federated Securities Corp. is a subsidiary of Federated Investors.
DISTRIBUTION AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with Investment Company Act Rule 12b-1 (the "Distribution Plan"),
the Fund may pay to the distributor an amount, computed at an annual rate of .25
of up to 1% of the average daily net asset value of the Institutional Service
Shares to finance any activity which is principally intended to result in the
sale of shares subject to the Distribution Plan. The distributor may select
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers, and broker/dealers to provide sales support services as
agents for their clients or customers. In addition, the Fund has adopted a
Shareholder Services Plan (the "Services Plan") under which it will pay
financial institutions an amount not exceeding .25 of 1% of the average daily
net asset value of the Institutional Service Shares to provide administrative
support services to their customers who own shares of the Fund. From time to
time and for such periods as deemed appropriate, the amounts stated above may be
reduced voluntarily. Activities and services under these arrangements may
include, but are not limited to,
providing advertising and marketing materials to prospective shareholders,
providing personal services to shareholders, and maintaining shareholder
accounts.
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 Fund or the
distributor, as appropriate.
The Distribution Plan is a compensation-type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund does
not pay for unreimbursed expenses of the distributor, including amounts expended
by the distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Distribution Plan.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Shareholder Services Plan, certain financial
institutions may be compensated by the Adviser or its affiliates for the
continuing investment of customers' assets in certain funds, including the Fund,
advised by those entities. These payments will be made directly by the
distributor or Adviser from their assets, and will not be made from the assets
of the Fund or by the assessment of a sales charge on shares.
ADMINISTRATION OF THE FUND
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 Fund.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors (the "Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET
FEE ----------------------- ASSETS OF THE FEDERATED FUNDS
-----------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P., Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young
LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Fund and Trust expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meetings of Trustees;
legal fees of the Trust; association membership dues; and such non-recurring and
extraordinary items as may arise.
The Fund expenses for which holders of Shares pay their allocable portion
include, but are not limited to: registering the Fund and Shares of the Fund;
investment advisory services; taxes and commissions; custodian fees; insurance
premiums; auditors' fees; and such non-recurring and extraordinary items as may
arise.
At present, the only expenses allocated to the Shares as a class are expenses
under the Fund's Rule 12b-1 Plan which relate to the Shares. However, the Board
of Trustees reserves the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: transfer agent fees as identified by the transfer agent as
attributable to holders of Shares; printing and postage expenses related to
preparing and distributing materials such as shareholder reports, prospectuses
and proxies to current shareholders; registration fees paid to the Securities
and Exchange Commission and registration fees paid to state securities
commissions; expenses related to administrative personnel and services as
required to support holders of Shares; legal fees relating solely to Shares; and
Trustees' fees incurred as a result of issues relating solely to Shares.
NET ASSET VALUE
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The Fund attempts to stabilize the net asset value of 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 total number of Shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN THE FUND
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SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open for
business. Shares may be purchased either by wire or mail.
To purchase Shares, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken over the telephone.
The Fund reserves the right to reject any purchase request.
BY WIRE. To purchase Shares by Federal Reserve wire, call the Fund before
1:00 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 same day. Federal funds should be wired as
follows: State Street Bank and Trust Company, Boston, Massachusetts;
Attention: EDGEWIRE; For Credit to: U.S. Treasury Cash
Reserves--Institutional Service Shares; Fund Number (this number can be
found on the account statement or by contacting the Fund); Group Number or
Order Number; Nominee or Institution Name; ABA Number 011000028.
BY MAIL. To purchase Shares by mail, send a check made payable to U.S.
Treasury Cash Reserves--Institutional Service Shares to the Fund's transfer
agent, Federated Services Company, c/o State Street Bank and Trust Company,
P.O. Box 8602, Boston, Massachusetts 02266-8602. Orders by mail are
considered received after payment by check is converted by the transfer
agent's bank, State Street Bank, into federal funds. This is normally the
next business day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Institutional Service Shares is $25,000.
However, an account may be opened with a smaller amount as long as the $25,000
minimum is reached within 90 days. An institutional investor's minimum
investment will be calculated by combining all accounts it maintains with the
Fund. Accounts established through a non-affiliated bank or broker may be
subject to a smaller minimum investment.
CASH SWEEP PROGRAM
Cash accumulations in demand deposit accounts with depository institutions such
as banks and savings and loan associations may be automatically invested in
Shares on a day selected by the depository institution and its customer, or when
the demand deposit account reaches a predetermined dollar amount (e.g., $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS. Participating depository
institutions are responsible for prompt transmission of orders relating to
the program. These depository institutions are the record owners of the
Shares. Depository institutions participating in this program may charge
their customers for their services relating to the program. This prospectus
should, therefore, be read together with any agreement between the customer
and the depository institution with regard to the services provided, the
fees charged for those services, and any restrictions and limitations
imposed.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund. Investors who purchase
Shares through a non-affiliated bank or broker may be charged an additional
service fee by that bank or broker.
The net asset value is determined at 12:00 noon (Eastern time), 1:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no Shares are tendered for redemption and no orders to
purchase Shares are
received; or (iii) the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Shares in a fiduciary, agency, custodial, or similar capacity may charge or pass
through subaccounting fees as part of or in addition to normal trust or agency
account fees. They may also charge fees for other services provided which may be
related to the ownership of Shares. This prospectus should, therefore, be read
together with any agreement between the customer and the institution with regard
to the services provided, the fees charged for those services, and any
restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
1:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the day after the check is converted, upon
instruction by the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional Shares unless cash
payments are requested by contacting the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
REDEEMING SHARES
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The Fund redeems Shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their Shares by telephoning the Fund before 12:00 noon
(Eastern time). The proceeds will be wired the same day to the shareholder's
account at a domestic commercial bank that is
a member of the Federal Reserve System. If, at any time, the Fund shall
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
A daily dividend will be paid on Shares redeemed if the redemption request is
received after 12:00 noon (Eastern time). However, the proceeds are not wired
until the following business day. Redemption requests received before 12:00 noon
(Eastern time) will be paid the same day but will not be entitled to that day's
dividend.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as Written Requests, should be considered.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
WRITTEN REQUESTS
Shares may also be redeemed by sending a written request to the Fund. Call the
Fund for specific instructions before redeeming by letter. The shareholder will
be asked to provide in the request his name, the Fund name, his account number,
and the share or dollar amount requested. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Fund, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantees to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional Shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio of the Trust have equal voting rights except that in matters
affecting only a particular portfolio or class, only shares of that portfolio or
class are entitled to vote. As a Massachusetts business trust, the Trust is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Trust's or the Fund's operation and for
the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders shall be called by the Trustees upon the
written request of shareholders owning at least 10% of the outstanding shares of
the Trust.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust on behalf of the
Fund. To protect shareholders of the Fund, the Trust has filed legal documents
with Massachusetts that expressly disclaim the liability of its shareholders of
the Fund for such 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 on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use property of the Fund to protect or
compensate the shareholder. On request, the Trust will defend any claim made and
pay any judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund 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.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
are received in cash or as additional Shares.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. Treasury obligations paying
interest which, if owned directly by shareholders of the Fund, would be exempt
from state personal income tax. However, under the laws of some states, the net
investment income distributed by the Fund may be taxable to shareholders. State
laws differ on this issue, and shareholders are urged to consult their own tax
advisers regarding the status of their accounts under state and local tax laws.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES. In the opinion of Houston,
Houston & Donnelly, counsel to the Fund:
- the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
- 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 Fund would be subject to such taxes if
owned directly by residents of those jurisdictions.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield and effective yield for Shares.
The yield represents the annualized rate of income earned on an investment in
Shares over a seven-day period. It is the annualized dividends earned during the
period on the 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 in Shares is assumed to be reinvested daily. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
Performance figures will be calculated separately for each class of shares.
Because each class of shares is subject to different expenses, the performance
of Institutional Shares will exceed the yield and effective yield of
Institutional Service Shares for the same period.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Shares are sold at net asset value to accounts for which financial
institutions act in an agency or fiduciary capacity. Investments in
Institutional Shares are subject to a minimum initial investment of $25,000 over
a 90-day period. Institutional Shares are not sold pursuant to a 12b-1 Plan.
Financial institutions providing distribution or administrative services may
receive different compensation depending upon which class of shares of the Fund
is sold. The distributor may pay a financial institution for administrative
services related to the Institutional Shares class and may make such payments
with respect to the Institutional Service Shares class, in addition to fees paid
by the Institutional Service Shares pursuant to the 12b-1 Plan. The amount of
dividends payable to shareholders of Institutional Shares will exceed that
payable to the shareholders of Institutional Service Shares by the difference
between Class Expenses and 12b-1 Plan expenses borne by Institutional Service
Shares. The stated advisory fee is the same for both classes of shares.
U.S. TREASURY CASH RESERVES
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SHARES
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Ernst & Young LLP, Independent Auditors, on
page 20.
Institutional Service Shares were not being offered as of April 30, 1994.
Accordingly, there are no Financial Highlights for such shares. The Financial
Highlights presented below and the financial information presented on the pages
that follow are historical information for Institutional Shares.
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------------
1994 1993 1992**
-------- -------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- ----------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------
Net investment income 0.03 0.03 0.04
- ---------------------------------------------------- ----- ----- -----
LESS DISTRIBUTIONS
- ----------------------------------------------------
Dividends to shareholders from
net investment income (0.03) (0.03) (0.04)
- ---------------------------------------------------- ----- ----- -----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- ---------------------------------------------------- ----- ----- -----
TOTAL RETURN* 2.95% 3.13% 4.24%
- ----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------
Expenses 0.20% 0.20% 0.16%(a)
- ----------------------------------------------------
Net investment income 2.93% 3.03% 4.42%(a)
- ----------------------------------------------------
Expense waiver/reimbursement(b) 0.43% 0.50% 0.62%(a)
- ----------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------
Net assets, end of period (000 omitted) $265,030 $177,471 $83,244
- ----------------------------------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
** Reflects operations for the period from June 11, 1991 (date of initial public
investment) to
April 30, 1992.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
U.S. TREASURY CASH RESERVES
PORTFOLIO OF INVESTMENTS
APRIL 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------
<C> <S> <C>
U.S. TREASURY OBLIGATIONS--89.9%
- ---------------------------------------------------------------------------------
* U.S. TREASURY BILLS--71.0%
------------------------------------------------------------------
$31,000,000 3.14% - 3.32%, 5/5/94 $ 30,989,023
------------------------------------------------------------------
9,750,000 3.25%, 5/12/94 9,740,318
------------------------------------------------------------------
6,450,000 3.36%, 5/26/94 6,434,972
------------------------------------------------------------------
14,900,000 3.47% - 3.59%, 6/2/94 14,853,777
------------------------------------------------------------------
14,400,000 3.41% - 3.49%, 6/9/94 14,346,358
------------------------------------------------------------------
17,200,000 3.65%, 6/16/94 17,119,781
------------------------------------------------------------------
24,650,000 3.44% - 3.50%, 6/23/94 24,524,912
------------------------------------------------------------------
10,000,000 3.64%, 6/30/94 9,939,417
------------------------------------------------------------------
35,400,000 3.53% - 3.55%, 7/7/94 35,167,705
------------------------------------------------------------------
19,050,000 3.55% - 3.79%, 7/14/94 18,908,997
------------------------------------------------------------------
6,250,000 3.74%, 7/21/94 6,197,476
------------------------------------------------------------------ ------------
Total 188,222,736
------------------------------------------------------------------ ------------
U.S. TREASURY NOTES -- 18.9%
------------------------------------------------------------------
20,000,000 9.50%, 5/15/94 20,043,750
------------------------------------------------------------------
30,000,000 5.125%, 5/31/94 30,032,227
------------------------------------------------------------------ ------------
Total 50,075,977
------------------------------------------------------------------ ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $238,298,713+
------------------------------------------------------------------ ------------
</TABLE>
* Each issue shows the rate of discount at the time of purchase.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($265,030,040) at
April 30, 1994.
(See Notes which are an integral part of the Financial Statements)
U.S. TREASURY CASH RESERVES
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $238,298,713
- --------------------------------------------------------------------------------
Cash 23,262
- --------------------------------------------------------------------------------
Receivable for investments sold 40,250,000
- --------------------------------------------------------------------------------
Interest receivable 2,599,618
- --------------------------------------------------------------------------------
Deferred expenses (Note 2E) 19,444
- -------------------------------------------------------------------------------- ------------
Total assets 281,191,037
- --------------------------------------------------------------------------------
LIABILITIES:
- ------------------------------------------------------------------
Payable for investments purchased $15,338,949
- ------------------------------------------------------------------
Dividends payable 709,985
- ------------------------------------------------------------------
Payable to administrator (Note 4) 4,910
- ------------------------------------------------------------------
Payable to transfer and dividend disbursing agent (Note 4) 5,262
- ------------------------------------------------------------------
Payable for Fund shares redeemed 56
- ------------------------------------------------------------------
Accrued expenses and other liabilities 101,835
- ------------------------------------------------------------------ -----------
Total liabilities 16,160,997
- -------------------------------------------------------------------------------- ------------
NET ASSETS FOR 265,030,040 shares of beneficial interest outstanding $265,030,040
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Price Per Share
($265,030,040 / 265,030,040 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
U.S. TREASURY CASH RESERVES
STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income (Note 2B) $7,665,260
- ------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Investment advisory fee (Note 4) $ 981,067
- ----------------------------------------------------------------------
Trustees' fees 5,113
- ----------------------------------------------------------------------
Administrative personnel and service fee (Note 4) 295,386
- ----------------------------------------------------------------------
Custodian and record keeping fees and expenses 108,127
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 21,498
- ----------------------------------------------------------------------
Fund share registration costs 66,035
- ----------------------------------------------------------------------
Legal fees 8,879
- ----------------------------------------------------------------------
Auditing fees 14,933
- ----------------------------------------------------------------------
Printing and postage 6,788
- ----------------------------------------------------------------------
Insurance premiums 8,587
- ----------------------------------------------------------------------
Taxes 35
- ----------------------------------------------------------------------
Shareholder services fee (Note 4) 23,515
- ----------------------------------------------------------------------
Miscellaneous 14,158
- ---------------------------------------------------------------------- ----------
Total expenses 1,554,121
- ----------------------------------------------------------------------
Deduct--
- ----------------------------------------------------------------------
Waiver of investment advisory fee (Note 4) $981,067
- -----------------------------------------------------------
Reimbursement of other operating expenses (Note 4) 82,521 1,063,588
- ----------------------------------------------------------- -------- ----------
Net expenses 490,533
- ------------------------------------------------------------------------------------ ----------
Net investment income $7,174,727
- ------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
U.S. TREASURY CASH RESERVES
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------
1994 1993
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 7,174,727 $ 4,087,405
- --------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
- ---------------------------------------------------------------
Dividends to shareholders from net investment income (7,174,727) (4,087,405)
- --------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ---------------------------------------------------------------
Proceeds from sale of shares 885,678,265 415,811,738
- ---------------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 163,079 87,318
- ---------------------------------------------------------------
Cost of shares redeemed (798,282,485) (321,671,827)
- --------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 87,558,859 94,227,229
- --------------------------------------------------------------- ------------- -------------
Change in net assets 87,558,859 94,227,229
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 177,471,181 83,243,952
- --------------------------------------------------------------- ------------- -------------
End of period $ 265,030,040 $ 177,471,181
- --------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
U.S. TREASURY CASH RESERVES
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Federated Government Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment company.
The Trust consists of three, diversified portfolios. The financial statements
included herein present only those of U.S. Treasury Cash Reserves (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles (GAAP).
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio
securities is in accordance with Rule 2a-7 under the Investment Company Act of 1940.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code,
as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code,
applicable to regulated investment companies and to distribute to shareholders each year
all of its taxable income. Accordingly, no provision for federal tax is necessary.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities 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.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
U.S. TREASURY CASH RESERVES
- --------------------------------------------------------------------------------
(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 April
30, 1994, capital paid in aggregated $265,030,040. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------
1994 1993
- ----------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 885,678,265 415,811,738
- -----------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 163,079 87,318
- -----------------------------------------------------------------
Shares redeemed (798,282,485) (321,671,827)
- ----------------------------------------------------------------- ------------ ------------
Net change resulting from Fund share transactions 87,558,859 94,227,229
- ----------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Management, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to 0.40 of 1% of the Fund's average daily net assets. Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Fund. Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services and Federated
Administrative Services, Inc. collectively provided the Fund administrative and
personnel services. Prior to March 1, 1994, these services were provided at
approximate cost. Effective March 1, 1994, the 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 any
fiscal year 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 Fund will pay FSS up to .25 of
1% of average net assets of the Fund for the period. This fee is to obtain
certain personal services for shareholders and the maintenance of shareholder
accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEE--Federated Services Company ("FServ")
serves as transfer and dividend disbursing agent for the Fund. The fee is based
on the size, type and number of accounts and transactions made by shareholders.
Certain of the Officers and Trustees of the Trust are Officers and Directors of
the above companies.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
U.S. TREASURY CASH RESERVES:
We have audited the accompanying statement of assets and liabilities of U.S.
Treasury Cash Reserves (a portfolio of Federated Government Trust), including
the portfolio of investments, as of April 30, 1994, and the related statement of
operations for the year then ended and the statement of changes in net assets
for each of the two years in the period then ended, and the financial highlights
(see page 13 of the Prospectus) for each of the three years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of April
30, 1994, by correspondence with the custodian and brokers. 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, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of U.S.
Treasury Cash Reserves at April 30, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
June 9, 1994
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
U.S. Treasury Cash Reserves
Institutional Service Shares Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Management Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company P.O. Box 8602
Boston, Massachusetts 02266-8602
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
U.S. TREASURY
CASH RESERVES
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A Diversified Portfolio of Federated
Government Trust, An Open-End,
Management Investment Company
October 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
1022103A-SS (10/94)
U.S. TREASURY CASH RESERVES
(A PORTFOLIO OF FEDERATED GOVERNMENT TRUST)
INSTITUTIONAL SHARES
INSTITUTIONAL SERVICE SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus(es)
for U.S. Treasury Cash Reserves (the "Fund") dated June 30, 1994 and October 30,
1994. This Statement is not a prospectus itself. To receive a copy of the
prospectus(es), write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated October 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and
Delayed Delivery Transactions 1
Investment Limitations 1
FEDERATED GOVERNMENT TRUST MANAGEMENT 2
- ---------------------------------------------------------------
The Funds 4
Trust Ownership 5
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 5
- ---------------------------------------------------------------
Adviser to the Fund 5
Advisory Fees 5
Other Advisory Services 5
ADMINISTRATIVE SERVICES 6
- ---------------------------------------------------------------
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT 6
- ---------------------------------------------------------------
SHAREHOLDER SERVICES PLAN 6
- ---------------------------------------------------------------
DISTRIBUTION PLAN 6
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 6
- ---------------------------------------------------------------
PURCHASING SHARES 7
- ---------------------------------------------------------------
Conversion to Federal Funds 7
DETERMINING NET ASSET VALUE 7
- ---------------------------------------------------------------
Use of the Amortized Cost Method 7
REDEEMING SHARES 8
- ---------------------------------------------------------------
Redemption in Kind 8
TAX STATUS 8
- ---------------------------------------------------------------
The Fund's Tax Status 8
Shareholders' Tax Status 8
YIELD 9
- ---------------------------------------------------------------
EFFECTIVE YIELD 9
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 9
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Federated Government Trust (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
December 7, 1989.
Shares of the Fund are offered in two classes, Institutional Service Shares and
Institutional Shares (individually and collectively referred to as "Shares").
This Combined Statement of Additional Information relates to the above-mentioned
Shares of the Fund.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests only in short-term U.S. Treasury obligations.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund 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.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund 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 transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Fund will not borrow money except as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold U.S. Treasury obligations, permitted by its investment objective,
policies and limitations or its Declaration of Trust.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or which represent
interests in real estate.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry, except securities issued by the U.S. Treasury.
The above investment 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 those limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, or other acquisition.
- --------------------------------------------------------------------------------
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities.
INVESTING IN WARRANTS
The Fund will not invest in warrants.
INVESTING IN MINERALS
The Fund will not purchase or sell oil, gas, or other mineral exploration
or development programs, or leases.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
FEDERATED GOVERNMENT TRUST MANAGEMENT
- --------------------------------------------------------------------------------
Officers and Trustees are listed with their addresses, present positions with
Federated Government Trust, and principal occupations.
- --------------------------------------------------------------------------------
John F. Donahue*+
Federated Investors Tower
Pittsburgh, PA
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or Managing General
Partner of the Funds. Mr. Donahue is the father of J. Christopher Donahue, Vice
President and Trustee of the Trust.
- --------------------------------------------------------------------------------
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
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
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
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, Trustee,
or Managing General Partner of the Funds; formerly, Director, Blue Cross of
Massachusetts, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Trustee
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore Hospitals;
Professor of Medicine and Trustee, University of Pittsburgh; Director of
Corporate Health, University of Pittsburgh Medical Center; Director, Trustee, or
Managing General Partner of the Funds.
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Edward L. Flaherty, Jr.+
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, 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
President and Trustee
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp. and Federated Administrative Services.
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Peter E. Madden
225 Franklin Street
Boston, MA
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director,
Trustee, or Managing General Partner of the Funds; formerly, President, State
Street Bank and Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
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Gregor F. Meyer
5916 Penn Mall
Pittsburgh, PA
Trustee
Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- --------------------------------------------------------------------------------
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie Endowment
for International Peace, RAND Corporation, Online Computer Library Center, Inc.,
and U.S. Space Foundation; Chairman, Czecho Slovak Management Center; Director,
Trustee, or Managing General Partner of the Funds; President Emeritus,
University of Pittsburgh; formerly, Chairman, National Advisory Council for
Environmental Policy and Technology.
- --------------------------------------------------------------------------------
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing General
Partner of the Funds.
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- --------------------------------------------------------------------------------
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Vice President
President and Trustee, Federated Investors; Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp.; President, Passport Research, Ltd.; Trustee, Federated Administrative
Services, Federated Services Company, and Federated Shareholder Services;
President or Vice President of the Funds; Director, Trustee, or Managing General
Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue,
Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of the Funds;
Director or Trustee of some of the Funds.
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Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Vice President and Treasurer
Vice President, Treasurer, and Trustee, Federated Investors; Vice President and
Treasurer, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., and Passport Research, Ltd.; Executive Vice President,
Treasurer, and Director, Federated Securities Corp.; Trustee, Federated Services
Company and Federated Shareholder Services; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee or Director of some of the Funds;
Vice President and Treasurer of the Funds.
- --------------------------------------------------------------------------------
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated Investors;
Vice President, Secretary, and Trustee, Federated Advisers, Federated
Management, and Federated Research; Vice President and Secretary, Federated
Research Corp. and Passport Research, Ltd.; Trustee, Federated Services Company;
Executive Vice President, Secretary, and Trustee, Federated Administrative
Services; Secretary and Trustee, Federated Shareholder Services; Executive Vice
President and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
- --------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940, as amended.
+ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Arrow Funds; Automated Cash
Management Trust; Automated Government Money Trust; California Municipal Cash
Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward
D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated
Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated
Growth Trust; Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Intermediate Government
Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc.-1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; The Medalist Funds; Money
- --------------------------------------------------------------------------------
Market Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds;
The Shawmut Funds; Short-Term Municipal Trust; Star Funds; The Starburst Funds;
The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial
Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; World Investment
Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of October 26, 1994, the following shareholders of record owned 5% or more of
the outstanding shares of Institutional Shares of Fund: First Security Bank of
Utah, NA of Salt Lake City, Utah owned approximately 27,279,937 shares (7.7%);
Old Stone Trust Company of Providence, Rhode Island owned approximately
18,562,705 shares (5.2%); Trans Financial Bank of Bowling Green, Kentucky owned
approximately 44,245,790 shares (12.5%); and Bankers Trust Services TN, Inc. of
Nashville, Tenneesee owned approximately 25,000,000 shares (7.0%).
As of October 26, 1994, there were no shareholders of record who owned 5% or
more of the outstanding Institutional Service Shares of the Fund.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors. All of the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue.
The Adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund 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, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal years ended April 30,
1994, 1993, and the period from June 11, 1991 (date of initial public
investment) to April 30, 1992, the Adviser earned $981,067, $538,993, and
$166,536, respectively, for services provided on behalf of Institutional Shares,
all of which was voluntarily waived because of undertakings to limit the Fund's
expenses. In addition, the Fund's Adviser reimbursed $82,521, $138,240, and
$90,200, respectively, of other operating expenses incurred on behalf of
Institutional Shares.
STATE EXPENSE LIMITATION
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 Fund'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 Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER ADVISORY SERVICES
Federated Research Corp., a subsidiary of Federated Investors, receives fees
from certain depository institutions for providing consulting and portfolio
advisory services relating to each institution's program of asset management.
Federated Research Corp. may advise such clients to purchase or redeem shares of
investment companies which are
- --------------------------------------------------------------------------------
managed, for a fee, by Federated Research Corp. or other affiliates of Federated
Investors, such as the Adviser, and may advise such clients to purchase and sell
securities in the direct markets.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund 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 Fund'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 April 30, 1994, 1993, and the period from June 11, 1991 (date of
initial public investment) to April 30, 1992, the Administrators collectively
earned $295,386, $228,288 and $105,653, respectively. Dr. Henry J. Gailliot, an
officer of the Adviser, holds approximately 20% of the outstanding common stock
and serves as director of Commercial Data Services, Inc., a company which
provides computer processing services to the Administrators.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
- --------------------------------------------------------------------------------
Federated Services Company serves as transfer agent and dividend disbursing
agent for the Fund. The fee paid to the transfer agent is based upon the size,
type, and number of accounts and transactions made by shareholders.
Federated Services Company also maintains the Fund's accounting records. The fee
paid for this service is based upon the level of the Fund's average net assets
for the period plus out-of-pocket expenses.
SHAREHOLDER SERVICES PLAN
- --------------------------------------------------------------------------------
This arrangement permits the payment of fees to Federated Shareholder Services
and, indirectly, to financial institutions to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to, 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. For
the fiscal period ended April 30, 1994, payments in the amount of $23,515 were
made pursuant to the Shareholder Services Plan on behalf of Institutional
Shares.
DISTRIBUTION PLAN
- --------------------------------------------------------------------------------
With respect to Institutional Service Shares, the Fund has adopted a Plan
pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange
Commission pursuant to the Investment Company Act of 1940. The Plan permits the
payment of fees to brokers for distribution and administrative services and to
administrators for administrative services. The Plan is designed to (i)
stimulate brokers to provide distribution and administrative support services to
shareholders and (ii) stimulate administrators to render administrative support
services to shareholders. The administrative services are provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals. By adopting the Plan, the Board of Trustees expects that the Fund
will be able to achieve a more predictable flow of cash for investment purposes
and to meet redemptions. This will facilitate more efficient portfolio
management and assist the Fund in seeking to achieve its investment objectives.
By identifying potential investors whose needs are served by the Fund's
objectives, and properly servicing these accounts, it may be possible to curb
sharp fluctuations in rates of redemptions and sales. Other benefits may
include: (1) an efficient and effective administrative system; (2) a more
efficient use of shareholder assets by having them rapidly invested with a
minimum of delay and administrative detail; and (3) an efficient and reliable
shareholder records system and prompt responses to shareholder requests and
inquiries concerning their accounts.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Trustees.
- --------------------------------------------------------------------------------
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund 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.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser or by
affiliates of Federated Investors in advising The Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
Adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The procedure for purchasing shares of the Fund is explained in the prospectus
under "Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
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.
The Fund'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, as amended. 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 Fund's investment objective.
Under the Rule, a fund is permitted to purchase instruments which are subject to
demand features or standby commitments. As defined by the Rule, a demand feature
entitles a fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding one year on no more than 30 days' notice. A standby
commitment entitles a fund to achieve same day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' 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
.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.
INVESTMENT RESTRICTIONS
The Rule requires that a fund limit its investments to instruments that,
in the opinion of the Trustees, present minimal credit risk and have
received the requisite ratings from one or more nationally recognized
statistical
- --------------------------------------------------------------------------------
rating organizations. If the instruments are not rated, the Trustees must
determine that they are of comparable quality. The Rule also requires a
fund to maintain a dollar weighted average portfolio maturity (not more
than 90 days) appropriate to the objective of maintaining a stable net
asset value of $1.00 per share. In addition, no instrument with a
remaining maturity of more than thirteen months can be purchased by a
fund.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, the Fund will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
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 both
classes of shares of the Fund computed by dividing the annualized daily income
on the Fund's portfolio for each class by the net asset value for each class
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 indicated daily yield on either class
of shares of the Fund computed the same way may tend to be lower than similar
computations made by using a method of calculation based upon market prices and
estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for telephone redemptions it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940, as amended, under which the Trust is obligated to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's
net asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
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.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them once every 12 months.
YIELD
- --------------------------------------------------------------------------------
The Fund's yield for Institutional Shares the seven-day period ended April 30,
1994, was 3.28%.
The Fund calculates its yield daily, 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).
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 Fund, the performance will be reduced for those shareholders paying those
fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield for Institutional Shares the seven-day period ended
April 30, 1994, was 3.33%.
The Fund's effective yield is computed 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.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in Fund expenses; and
- - the relative amount of Fund cash flow.
Investors may use financial publications, and/or indices to obtain a more
complete view of the Fund'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 offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S. Treasury,
maturing in 30 days.
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends, and capital gains distributions, if any.
- - IBC/DONOGHUE'S MONEY FUND REPORT (100% U.S. Treasury category) publishes
annualized yields of hundreds of money markets on a weekly basis and through
its Money Market Insight publication, reports monthly and 12-month-to-date
investment results for the same money funds.
From time to time, the Fund will quote its Lipper ranking in the "U.S. treasury
money market funds" category in advertising and sales literature.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
1022103B (6/94)
