TRUST FOR SHORT-TERM
U.S. GOVERNMENT SECURITIES
PROSPECTUS
Trust for Short-Term U.S. Government Securities (the "Trust") is a no-load,
open-end, diversified management investment company (a mutual fund) investing in
short-term U.S. government securities to achieve high current income consistent
with stability of principal and liquidity.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.
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
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated January 31,
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 to make
inquiries about the Trust, contact this Trust at the address listed in the back
of this prospectus.
The Trust 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 Trust
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 January 31, 1994
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 4
When-Issued and Delayed Delivery
Transactions 4
Portfolio Turnover 4
Investment Limitations 4
Regulatory Compliance 5
TRUST INFORMATION 5
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Management of the Trust 5
Board of Trustees 5
Investment Adviser 5
Advisory Fees 5
Adviser's Background 5
Distribution of Trust Shares 6
Administration of the Trust 6
Administrative Services 6
Custodian 6
Transfer Agent and
Dividend Disbursing Agent 6
Legal Counsel 6
Independent Auditors 6
NET ASSET VALUE 6
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INVESTING IN THE TRUST 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
Redemption Before Purchase
Instruments Clear 10
Accounts with Low Balances 10
Redemption in Kind 10
SHAREHOLDER INFORMATION 10
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Voting Rights 10
Massachusetts Partnership Law 10
TAX INFORMATION 11
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Federal Income Tax 11
State and Local Taxes 11
Pennsylvania Corporate and
Personal Property Taxes 11
PERFORMANCE INFORMATION 11
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FINANCIAL STATEMENTS 12
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INDEPENDENT AUDITORS' REPORT 20
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ADDRESSES Inside Back Cover
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)........................................................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................................ None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)...................................... None
Redemption Fees (as a percentage of amount redeemed, if applicable).......................... None
Exchange Fee................................................................................. None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver) (1)............................................................ 0.38%
12b-1 Fee.................................................................................... None
Total Other Expenses......................................................................... 0.07%
Total Trust Operating Expenses (2)................................................. 0.45%
</TABLE>
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(1) The management fee has been reduced to reflect the waiver of a portion of
the management fee. The maximum management fee is 0.40%.
(2) The total Trust operating expenses would have been 0.47% absent the waiver
of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "TRUST INFORMATION." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN
$5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in
the table above, the Trust charges no redemption fees................. $5 $14 $25 $57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 20.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
- ----------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------
INCOME FROM
INVESTMENT OPERA-
TIONS
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Net investment
income 0.03 0.04 0.06 0.08 0.09 0.07 0.06 0.06 0.08 0.10
- ----------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS
DISTRIBUTIONS
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Dividends to
shareholders
from net
investment
income (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.06) (0.06) (0.08) (0.10)
- ----------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL RETURN* 2.87% 3.72% 6.10% 8.08% 9.01% 7.05% 6.09% 6.59% 8.65% 10.07%
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RATIOS TO AVERAGE
NET ASSETS
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Expenses 0.45% 0.45% 0.46% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45% 0.45%
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Net investment
income 2.82% 3.68% 5.99% 7.79% 8.65% 6.79% 5.90% 6.39% 7.91% 9.61%
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SUPPLEMENTAL DATA
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Net assets, end
of
period (000
omitted) $1,730,402 $2,358,748 $2,802,108 $3,603,455 $3,852,650 $3,993,621 $5,148,285 $5,866,222 $6,108,833 $6,141,101
- -----------------
</TABLE>
* Based on net asset value which does not reflect the sales load or redemption
fee, if applicable.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated October 30, 1975. The Trust is designed for institutional
investors, such as banks, fiduciaries, custodians of public funds, and similar
institutional investors, such as corporations, unions, hospitals, insurance
companies, and municipalities, as a convenient means of participating in a
professionally managed, diversified portfolio limited to short-term U.S.
government securities. The Trust is also designed for customers of institutional
investors. A minimum initial investment of $25,000 over a 90-day period is
required.
The Trust attempts to stabilize the value of a Share at $1.00. Trust shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Trust is high current income consistent with
stability of principal and liquidity. The Trust pursues this investment
objective by investing in a portfolio of short-term U.S. government securities.
The average maturity of U.S. government securities in the Trust's portfolio,
computed on a dollar-weighted basis, will be 120 days or less. As a matter of
operating policy, in order to meet certain regulatory requirements, the Trust
will limit the average maturity of portfolio securities to 90 days or less and
will limit its acquisition of any single portfolio security to those with a
remaining maturity of thirteen months or less. While there is no assurance that
the Trust will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus. The investment
objective and the polices and limitations described below cannot be changed
without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Trust
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Federal Home Loan Bank, Federal Farm Credit
Bank, and Student Loan Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Trust
invests may be purchased pursuant to repurchase agreements. Repurchase
agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or other
securities to the Trust and agree at the time of sale to repurchase them at
a mutually agreed upon time and price within one year from the date of
acquisition. The Trust or its custodian will take possession of the
securities subject to repurchase agreements and these securities will be
marked to market daily. To the extent that the original seller does not
repurchase the securities from the Trust, the Trust could receive less than
the repurchase price on any sale of such securities. In the event that such
a defaulting seller filed for bankruptcy or became insolvent, disposition
of such securities by the Trust might be delayed pending court action. The
Trust believes that under the regular procedures normally in effect for
custody of the Trust's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Trust and allow retention or disposition of such securities. The Trust will
only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are found by the
Trust's adviser to be creditworthy pursuant to guidelines established by
the Trustees.
As a matter of investment practice, which can be changed without shareholder
approval, the Trust will limit its investments to those U.S. government
securities, the interest from which is exempt from personal income tax in the
various states if owned directly. In addition, repurchase agreements providing
for settlement in more than seven days after notice, along with illiquid
obligations, will be limited to not more than 10% of the Trust's net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
short-term U.S. government securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Trust purchases
securities with payment and delivery scheduled for a future time. The Trust
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the Trust's investment objective
and policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Trust relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Trust to miss a price
or yield considered to be advantageous.
PORTFOLIO TURNOVER. _The Trust normally holds portfolio instruments to maturity
but may dispose of them prior to maturity if its investment adviser believes it
advisable. Investing in short-term U.S. government securities will result in
high portfolio turnover. Since the cost of these transactions is small, high
turnover is not expected to adversely affect net asset value or yield.
INVESTMENT LIMITATIONS
The Trust will not borrow money except, under certain circumstances, the Trust
may borrow up to one-third of the value of its total assets.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Trust
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Trust will determine the effective maturity of its
investments according to Rule 2a-7. The Trust may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees ("Trustees").
The Trustees are responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research, the Trust's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Trust and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. Under the
investment advisory contract, the adviser will reimburse the Trust the
amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including its investment advisory fee,
but excluding interest, taxes, brokerage commissions, expenses of
registering and qualifying the Trust and its shares under federal and state
laws, expenses of withholding taxes, and extraordinary expenses, exceed .45
of 1% of its average daily net assets. This does not include reimbursement
to the Trust of any expenses incurred by shareholders who use the transfer
agent's subaccounting facilities. The adviser has also undertaken to
reimburse the Trust for operating expenses in excess of limitations
established by certain states.
ADVISER'S BACKGROUND. Federated Research, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Research and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries of Federated Investors 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-adverse 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 TRUST SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, Inc., which is a
subsidiary of Federated Investors, provides the Trust with the administrative
personnel and services necessary to operate the Trust. Such services include
shareholder servicing and certain legal and accounting services. Federated
Administrative Services, Inc. provides these at approximate cost.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Trust and
dividend disbursing agent for the Trust.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Trust are Deloitte &
Touche, Boston, Massachusetts.
NET ASSET VALUE
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The Trust attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Trust, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN THE TRUST
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SHARE PURCHASES
Trust shares are sold on days on which the New York Stock Exchange is open.
Shares may be purchased either by wire or by mail. To purchase shares of the
Trust, open an account by calling Federated Securities Corp. Information needed
to establish the account will be taken over the telephone. The Trust reserves
the right to reject any purchase request.
BY WIRE. To purchase shares of the Trust by Federal Reserve wire, call the
Trust before 3:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) that same day. Federal funds should be wired as follows: State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Trust for Short-Term U.S. Government Securities; Fund Number (this
number can be found on the account statement or by contacting the Trust); Group
Number or Order Number; Nominee or Institution Name; and ABA Pound011000028.
Shares cannot be purchased by Federal Reserve wire on days on which the New York
Stock Exchange is closed and on federal holidays restricting wire transfers.
BY MAIL. To purchase shares of the Trust by mail, send a check made payable to
Trust for Short-Term U.S. Government Securities to Federated Services Company,
c/o State Street Bank and Trust Company, P.O. Box 8602, Boston, Massachusetts
02266-8602. Orders by mail are considered received after payment by check is
converted by 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 the Trust is $25,000. However, an account may
be opened with a smaller amount as long as the $25,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Trust. Accounts established through
a bank or broker may be subject to a different 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 of the Trust 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 of the Trust.
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
Trust shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 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 Trust'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; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Institutions holding
Trust 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 Trust shares. This prospectus should,
therefore, be read together with any agreement between the customer and the
institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
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
3:00 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 of the transfer agent, into federal funds. Dividends are
automatically reinvested on payment dates in additional shares of the Trust
unless cash payments are requested by contacting the Trust.
CAPITAL GAINS
Since the Trust's policy is, under normal circumstances, to hold portfolio
securities to maturity and to value portfolio securities at amortized cost, it
does not expect any capital gains or losses. If the Trust does experience gains,
it could result in an increase in dividends. Capital losses could result in a
decrease in dividends. If, for some extraordinary reason, the Trust realizes net
long-term capital gains, it will distribute them at least once every 12 months.
REDEEMING SHARES
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The Trust redeems shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone request or by written request.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Trust before 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 Trust 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 Trust 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. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as "Written Requests", should be considered.
WRITTEN REQUESTS
Trust shares may also be redeemed by sending a written request to the Trust.
Call the Trust for specific instructions before redeeming by letter. The
shareholder will be asked to provide in the request his name, the Trust name,
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 Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF") which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check, the proceeds from the redemption of those
shares are not available, and the shares may not be exchanged, until the Trust
or its agents are reasonably certain that the purchase check has cleared, which
could take up to ten calendar days.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before Shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Trust's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion of
the remainder of the redemption in portfolio instruments, valued in the same way
as the Trust determines net asset value. The portfolio instruments will be
selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
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VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for 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 Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and
pay judgments against them.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
are received in cash or as additional shares.
STATE AND LOCAL TAXES
The Trust intends to limit its investments to U.S. government securities paying
interest which, if owned directly by shareholders of the Trust, would be exempt
from state and personal income tax. However, under the laws of some states, the
net investment income distributed by the Trust 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 Trust:
the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to
such taxes if owned directly by residents of those jurisdictions.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its yield and effective yield.
The yield of the Trust represents the annualized rate of income earned on an
investment in the Trust 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 the Trust 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 the Trust after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Trust may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- --------------- --------------------------------------------------------------------------- -----------------
SHORT-TERM GOVERNMENT OBLIGATIONS--35.3%
- --------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK NOTES--0.8%
---------------------------------------------------------------------------
$ 14,000,000 3.32%. 5/2/94 $ 14,002,460
--------------------------------------------------------------------------- -----------------
** FEDERAL FARM CREDIT BANK, DISCOUNT NOTES--1.8%
---------------------------------------------------------------------------
32,000,000 3.22%-3.27%, 2/3/94-8/1/94 31,707,003
--------------------------------------------------------------------------- -----------------
FEDERAL HOME LOAN BANK NOTES--2.9%
---------------------------------------------------------------------------
48,705,000 8.625%-12.00%, 2/25/94-6/27/94 49,907,141
--------------------------------------------------------------------------- -----------------
** FEDERAL HOME LOAN BANK, DISCOUNT NOTES--4.3%
---------------------------------------------------------------------------
74,105,000 3.14%-3.18%, 1/4/94-1/25/94 73,854,335
--------------------------------------------------------------------------- -----------------
* STUDENT LOAN MARKETING ASSOCIATION,
FLOATING RATE NOTES--25.5%
---------------------------------------------------------------------------
442,000,000 3.48%-3.79%, 12/7/93-5/19/94 441,939,408
--------------------------------------------------------------------------- -----------------
TOTAL SHORT-TERM GOVERNMENT OBLIGATIONS 611,410,347
--------------------------------------------------------------------------- -----------------
SHORT-TERM U.S. TREASURY OBLIGATIONS--10.8%
- --------------------------------------------------------------------------------------------
U.S. TREASURY BILLS--4.6%
---------------------------------------------------------------------------
80,000,000 3.285%-3.51%, 12/16/93-9/22/94 79,259,656
--------------------------------------------------------------------------- -----------------
U.S. TREASURY NOTES--6.2%
---------------------------------------------------------------------------
107,000,000 4.25%-6.875%, 2/15/94-7/31/94 107,638,475
--------------------------------------------------------------------------- -----------------
TOTAL SHORT-TERM U.S. TREASURY OBLIGATIONS 186,898,131
--------------------------------------------------------------------------- -----------------
TOTAL SHORT-TERM OBLIGATIONS 798,308,478
--------------------------------------------------------------------------- -----------------
REPURCHASE AGREEMENTS***--53.8%
- --------------------------------------------------------------------------------------------
30,000,000 und A.G. Lanston & Co., Inc., 3.25%, dated 11/30/93, due 12/1/93 30,000,000
---------------------------------------------------------------------------
50,000,000 und BT Securities Corp., 3.20%, dated 11/30/93, due 12/1/93 50,000,000
---------------------------------------------------------------------------
100,000,000 und Eastbridge Capital, Inc., 3.25%, dated 11/30/93, due 12/1/93 100,000,000
---------------------------------------------------------------------------
26,300,000 und Goldman Sachs & Co., 3.05% dated 11/30/93, due 12/1/93 26,300,000
---------------------------------------------------------------------------
</TABLE>
TRUST FOR SHORT-TERM U.S. GOVERNMENT OBLIGATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- --------------- --------------------------------------------------------------------------- -----------------
REPURCHASE AGREEMENTS***--CONTINUED
- --------------------------------------------------------------------------------------------
$ 38,390,000 und J.P. Morgan Securities, Inc., 3.24%,
dated 11/30/93, due 12/1/93 $ 38,390,000
---------------------------------------------------------------------------
60,000,000 und Nikko Securities Co., 3.25%, dated 11/30/93, due 12/1/93 60,000,000
---------------------------------------------------------------------------
360,000,000 und PaineWebber, Inc., 3.25%, dated 11/30/93, due 12/1/93 360,000,000
---------------------------------------------------------------------------
25,465,000 und S.G. Warburg & Co., Inc., 3.10%, dated 11/30/93, due 12/1/93 25,465,000
---------------------------------------------------------------------------
50,000,000 und S.G. Warburg & Co., Inc., 3.20%, dated 11/30/93, due 12/1/93 50,000,000
---------------------------------------------------------------------------
100,000,000 und Salomon Brothers, Inc., 3.25%, dated 11/30/93, due 12/1/93 100,000,000
---------------------------------------------------------------------------
25,000,000@ Goldman Sachs & Co., 3.10%, dated 11/30/93, due 12/20/93 25,000,000
---------------------------------------------------------------------------
30,000,000@ Kidder, Peabody & Co., Inc., 3.20%,
dated 10/25/93, due 1/24/94 30,000,000
---------------------------------------------------------------------------
36,000,000@ Morgan Stanley & Co., Inc., 3.25%, dated 10/05/93, due 1/4/94 36,000,000
--------------------------------------------------------------------------- -----------------
TOTAL REPURCHASE AGREEMENTS (NOTE 1B) 931,155,000
--------------------------------------------------------------------------- -----------------
TOTAL INVESTMENTS, AT AMORTIZED COST $ 1,729,463,478\
--------------------------------------------------------------------------- -----------------
</TABLE>
* Denotes variable rate obligations for which current rates and next reset
dates are shown.
** Each issue shows the rate of discount at the time of purchase.
*** Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio.
# The investment in the repurchase agreement was through participation in a
joint account with other Federated funds.
@ Although the final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
\ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($1,730,401,697) at November 30, 1993.
(See Notes which are an integral part of the Financial Statements)
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ----------------------------------------------------------------------------------------------
Investments in repurchase agreements (Note 1B) $ 931,155,000
- -----------------------------------------------------------------------------
Investments in other marketable securities 798,308,478
- ----------------------------------------------------------------------------- ---------------
Total investments, at amortized cost and value (Note 1A) $ 1,729,463,478
- ----------------------------------------------------------------------------------------------
Cash 589,522
- ----------------------------------------------------------------------------------------------
Interest receivable 4,233,345
- ----------------------------------------------------------------------------------------------
Receivable for Trust shares sold 4,726
- ---------------------------------------------------------------------------------------------- -----------------
Total assets 1,734,291,071
- ----------------------------------------------------------------------------------------------
LIABILITIES:
- ----------------------------------------------------------------------------------------------
Dividends payable 3,699,417
- -----------------------------------------------------------------------------
Payable for Trust shares redeemed 22,282
- -----------------------------------------------------------------------------
Accrued expenses and other liabilities 167,675
- ----------------------------------------------------------------------------- ---------------
Total liabilities 3,889,374
- ---------------------------------------------------------------------------------------------- -----------------
NET ASSETS for 1,730,401,697 shares of beneficial interest outstanding $ 1,730,401,697
- ---------------------------------------------------------------------------------------------- -----------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($1,730,401,697 / 1,730,401,697 SHARES OF BENEFICIAL INTEREST OUTSTANDING) $1.00
- ---------------------------------------------------------------------------------------------- -----------------
(SEE NOTES WHICH ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS)
</TABLE>
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------------------
Interest income (Note 1C) $ 71,348,751
- -------------------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------------------
Investment advisory fee (Note 4) $ 8,689,582
- ---------------------------------------------------------------------------------
Trustees' fees 25,794
- ---------------------------------------------------------------------------------
Administrative personnel and services (Note 4) 918,792
- ---------------------------------------------------------------------------------
Custodian, transfer and dividend disbursing agent fees and expenses 422,968
- ---------------------------------------------------------------------------------
Auditing fees 21,777
- ---------------------------------------------------------------------------------
Legal fees 145,990
- ---------------------------------------------------------------------------------
Printing and postage 10,336
- ---------------------------------------------------------------------------------
Taxes 31,087
- ---------------------------------------------------------------------------------
Registration fee 37,616
- ---------------------------------------------------------------------------------
Miscellaneous 64,054
- --------------------------------------------------------------------------------- --------------
Total expenses 10,367,996
- ---------------------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 523,530
- --------------------------------------------------------------------------------- --------------
Net expenses 9,844,466
- ------------------------------------------------------------------------------------------------- --------------
NET INVESTMENT INCOME $ 61,504,285
- ------------------------------------------------------------------------------------------------- --------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
1993 1992
INCREASE (DECREASE) IN NET ASSETS:
- ----------------------------------------------------------------------
OPERATIONS--
- ----------------------------------------------------------------------
Net investment income $ 61,504,285 $ 96,408,190
- ---------------------------------------------------------------------- -------------------- --------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2)--
- ----------------------------------------------------------------------
Dividends to shareholders from net investment income (61,504,285) (96,408,190)
- ---------------------------------------------------------------------- -------------------- --------------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ----------------------------------------------------------------------
Proceeds from sale of shares 9,948,537,734 10,993,976,907
- ----------------------------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 5,956,915 7,450,491
- ----------------------------------------------------------------------
Cost of shares redeemed (10,582,840,994) (11,444,787,502)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets from Trust share transactions (628,346,345) (443,360,104)
- ---------------------------------------------------------------------- -------------------- --------------------
Change in net assets (628,346,345) (443,360,104)
- ----------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------
Beginning of period 2,358,748,042 2,802,108,146
- ---------------------------------------------------------------------- -------------------- --------------------
End of period $ 1,730,401,697 $ 2,358,748,042
- ---------------------------------------------------------------------- -------------------- --------------------
(See Notes which are an integral part of the Financial Statements)
</TABLE>
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1993
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES
The Trust is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The following is a
summary of significant accounting policies consistently followed by the Trust in
the preparation of its financial statements. The policies are in conformity with
generally accepted accounting principles.
A. VALUATION OF INVESTMENTS--The Board of Trustees ("Trustees") has determined
that the best method currently available for valuing portfolio securities
is amortized cost. The Trust's use of the amortized cost method to value
its portfolio securities is conditioned on its compliance with Rule 2a-7 of
the Investment Company Act of 1940.
B. REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Trust to monitor on a daily basis the market value of
each repurchase agreement's underlying securities to ensure the existence
of a proper level of collateral.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as broker/dealers which are deemed
by the Trust's adviser to be creditworthy. Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Trust could receive less than the repurchase
price on the sale of collateral securities.
C. INCOME--Interest income is recorded on the accrual basis. Interest income
includes interest and discount earned (net of premium), including original
issue discount as required by the Internal Revenue Code, as amended, plus
realized gains, if any, on portfolio securities.
D. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Internal Revenue Code, as amended, applicable to investment companies
and to distribute to shareholders each year all of its taxable income.
Accordingly, no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. To the extent the Trust
engages in such transactions, it will do so for the purpose of acquiring
portfolio securities consistent with its investment objective and policies
and not for the purpose of investment leverage. The Trust will record a
when-issued security and the related liability on the trade date. Until the
securities are received and paid for, the Trust will maintain 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.
F. OTHER--Investment transactions are accounted for on the date of the
transaction.
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------
(2) DIVIDENDS
The Trust computes its net income daily and, immediately prior to the
calculation of its net asset value at the close of business, declares and
records dividends to shareholders of record at the time of the previous
computation of the Trust's net asset value. Payment of dividends is made monthly
in cash or in additional shares at the net asset value on the payable date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1993, capital paid-in aggregated $1,730,401,697. Transactions in
Trust shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
<S> <C> <C>
--------------------------------------
<CAPTION>
1993 1992
<S> <C> <C>
- ------------------------------------------------------------------------- ------------------ ------------------
Shares outstanding, beginning of period 2,358,748,042 2,802,108,146
- -------------------------------------------------------------------------
Shares sold 9,948,537,734 10,993,976,907
- -------------------------------------------------------------------------
Shares issued to shareholders in
payment of dividends declared 5,956,915 7,450,491
- -------------------------------------------------------------------------
Shares redeemed (10,582,840,994) (11,444,787,502)
- ------------------------------------------------------------------------- ------------------ ------------------
Shares outstanding, end of period 1,730,401,697 2,358,748,042
- ------------------------------------------------------------------------- ------------------ ------------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Federated Research, the Trust's investment adviser ("Adviser"), receives for its
services an annual investment advisory fee equal to .40 of 1% of the Trust's
average daily net assets. Under the investment advisory contract, the Adviser
has undertaken to reimburse the amount, limited to the amount of the advisory
fee, by which the Trust's aggregate annual operating expenses, including its
investment advisory fee, but excluding interest, taxes, brokerage commissions,
expenses of registering and qualifying the Trust and its shares under federal
and state laws, expenses of withholding taxes, and extraordinary expenses exceed
.45 of 1% of its average daily net assets. For the year ended November 30, 1993,
the Adviser received an advisory fee of $8,689,582 of which $523,530 was waived
in accordance with the above undertaking. Administrative personnel and services
were provided at approximate cost by Federated Administrative Services, Inc.
Certain of the Officers and Trustees of the Trust are Officers and Directors of
the above corporations.
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------
(5) FORWARD TRADE COMMITMENTS
At November 30, 1993, the Trust was under agreement to enter into the following
repurchase agreements:
$14,000,000 Nikko Securities Co., 5.40%, dated 12/31/93, due 1/3/94
$29,000,000 First Boston Corp., 3.20%, dated 1/3/94, due 1/31/94
These repurchase agreements were made in the normal course of business and are
subject to the Trust's general investment restrictions regarding
creditworthiness and collateralization levels. The contracts were executed on
December 31, 1993, and January 3, 1994, respectively.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Trust for Short-Term U.S. Government Securities
as of November 30, 1993, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended November 30,
1993 and 1992, and the financial highlights (see page 2 of the prospectus) for
each of the years in the ten-year period ended November 30, 1993. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
November 30, 1993 by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Trust for Short-Term
U.S. Government Securities as of November 30, 1993, the results of its
operations, the changes in its net assets, and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE
Boston, Massachusetts
January 14, 1994
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Trust for Short-Term U.S. Federated Investors Tower
Government Securities Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Federated Research 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 Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
TRUST FOR SHORT-TERM
U.S. GOVERNMENT SECURITIES
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
January 31, 1994
8010415A (1/94)
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Trust for Short-Term U.S. Government Securities (the
"Trust") dated January 31, 1994. This Statement is not a prospectus
itself. To receive a copy of the prospectus, write or call the Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated January 31, 1994
FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Investment Limitations 1
TRUST MANAGEMENT 2
- ---------------------------------------------------------------
Officers and Trustees 2
The Funds 4
Trust Ownership 5
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 5
- ---------------------------------------------------------------
Adviser to the Trust 5
Advisory Fees 5
Other Advisory Services 5
ADMINISTRATIVE SERVICES 6
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 6
- ---------------------------------------------------------------
PURCHASING SHARES 6
- ---------------------------------------------------------------
Conversion to Federal Funds 6
DETERMINING NET ASSET VALUE 6
- ---------------------------------------------------------------
Use of the Amortized Cost Method 6
REDEEMING SHARES 7
- ---------------------------------------------------------------
Redemption in Kind 7
TAX STATUS 8
- ---------------------------------------------------------------
The Trust's Tax Status 8
Shareholders' Tax Status 8
YIELD 8
- ---------------------------------------------------------------
EFFECTIVE YIELD 8
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 8
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST
- --------------------------------------------------------------------------------
Trust for Short-Term U.S. Government Securities (the "Trust") was established as
a Massachusetts business trust under a Declaration of Trust dated October 30,
1975.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Trust's investment objective is to provide high current income consistent
with stability of principal and
liquidity.
TYPES OF INVESTMENTS
The Trust invests only in short-term U.S. government securities. This investment
policy and the objective stated above cannot be changed without approval of
shareholders.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
Some of the short-term U.S. government securities the Trust may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate.
Variable interest rates will reduce the changes in the market value of
such securities from their original purchase prices. Accordingly, the
potential for capital appreciation or capital depreciation should not be
greater than the potential for capital appreciation or capital
depreciation of fixed interest rate U.S. government securities having
maturities equal to the interest rate adjustment dates of the variable
rate U.S. government securities.
The Trust may purchase variable rate U.S. government securities upon the
determination by the Board of Trustees ("Trustees") that the interest
rate as adjusted will cause the instrument to have a current market value
that approximates its par value on the adjustment date.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Trust may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. The securities are backed
by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Trust. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Trust sufficient to make payment for the
securities to be purchased are segregated on the Trust's records at the trade
date. These securities are marked to market daily and maintained until the
transaction is settled.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Trust will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.
- --------------------------------------------------------------------------------
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets or in an amount up to one-
third of the value of its total assets, including the amount borrowed, in
order to meet redemption requests without immediately selling portfolio
instruments. The Fund will not purchase any securities while borrowings
in excess of 5% of its total assets are outstanding. Any such borrowings
would not be collateralized.
PLEDGING SECURITIES
The Trust will not pledge securities.
MAKING LOANS
The Trust will not make loans, except that it may purchase or hold U.S.
government securities, including repurchase agreements, permitted by its
investment objective and policies.
ACQUIRING SECURITIES
The Trust will not acquire the voting securities of any issuer, except as
a part of a merger, consolidation, reorganization, or acquisition of
assets.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Trust did not borrow money in excess of 5% of the value of its net assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year.
TRUST MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Research,
Federated Investors, Federated Securities Corp., Federated Administrative
Services, Inc., and the Funds (as defined below).
<TABLE>
<S> <C> <C>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee Senior Vice-President, John R. Wood and Associates, Inc., Realtors;
Wood/IPC Commercial President, Northgate Village Development Corporation; General Partner or
Department Trustee in private real estate ventures in Southwest Florida; Director,
John R. Wood and Trustee, or Managing General Partner of the Funds; formerly, President,
Associates, Inc., Realtors Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-23rd Floor Director, Trustee, or Managing General Partner of the Funds; formerly,
Pittsburgh, PA Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp and
Director, Ryan Homes, Inc.
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly Counsel,
Horizon Financial, F.A., Western Region.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Trustee, Lahey Clinic Foundation, Inc.; Director, Trustee, or Managing
Boston, MA General Partner of the Funds; formerly, President, State Street Bank and
Trust Company and State Street Boston Corporation.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants; Director, Trustee, or Managing General
Pittsburgh, PA Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Glen R. Johnson President Trustee, Federated Investors; President and/or Trustee of some of the
Federated Investors Tower Funds; staff member, Federated Securities Corp. and Federated
Pittsburgh, PA Administrative Services, Inc.
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; President and Director,
Pittsburgh, PA Federated Administrative Services, Inc.; Trustee, Federated Services
Company; 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 Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
</TABLE>
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<TABLE>
<S> <C> <C>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
</TABLE>
<TABLE>
<S> <C> <C>
Edward C. Gonzales Vice President Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower and Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Executive Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated Services Company,
Chairman, Treasurer, and Director, Federated Administrative Services,
Inc.; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
John W. McGonigle Vice President and Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services, Inc.; Director and Executive Vice
President, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice President, The Standard Fire Insurance Company and
President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Members of the Trust's 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: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; BankSouth
Select Funds; The Boulevard Funds; California Municipal Cash Trust; Cash Trust
Series; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; 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; Insurance
Management Series; Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
New York Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
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; and Trust for U.S. Treasury
Obligations.
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TRUST OWNERSHIP
As of January 7, 1994 the following shareholders of record owned 5% or more of
outstanding shares of the Trust: ACO Integra Trust Services, Pittsburgh,
Pennsylvania, owned approximately 122,441,702 Shares (7.68%) and Fleet
Securities Corporation, Rochester, NY, owned approximately 122,261,924 Shares
(7.66%).
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
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ADVISER TO THE TRUST
The Trust's investment adviser is Federated Research. 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. John F. Donahue, Chairman and Trustee of Federated
Research, is Chairman and Trustee of Federated Investors and Chairman and
Trustee of the Trust. John A. Staley, IV, President and Trustee of Federated
Research, is Vice President and Trustee of Federated Investors, Executive Vice
President of Federated Securities Corp., and Vice President of the Trust. J.
Christopher Donahue, Trustee of Federated Research, is President and Trustee of
Federated Investors, President and Director of Federated Administrative
Services, Inc., and Vice President of the Trust. John W. McGonigle, Vice
President, Secretary, and Trustee of Federated Research, is Trustee, Vice
President, Secretary, and General Counsel of Federated Investors, Director,
Executive Vice President, and Secretary of Federated Administrative Services,
Inc., Executive Vice President and Director of Federated Securities Corp., and
Vice President and Secretary of the Trust.
The adviser shall not be liable to the Trust or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with
the Trust.
ADVISORY FEES
For its advisory services, Federated Research receives an annual investment
advisory fee as described in the prospectus. During the fiscal years ended
November 30, 1993, 1992, and 1991, the Trust's adviser earned $8,689,582,
$10,472,154, and $12,990,317, respectively, which was reduced by $523,530,
$442,035, and $617,019, respectively, because of undertakings to limit the
Trust's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER ADVISORY SERVICES
Federated Research Corp. receives fees from certain depository institutions for
providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may advise
such clients to purchase or redeem shares of investment companies 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.
5
ADMINISTRATIVE SERVICES
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Federated Administrative Services, Inc., a subsidiary of Federated Investors,
provides administrative personnel and services to the Trust at approximate cost.
For the fiscal years ended November 30, 1993, 1992, and 1991, the Trust incurred
costs for administrative services of $918,792, $852,928, and $1,136,013,
respectively. John A. Staley, IV, an officer of the Trust, and Dr. Henry J.
Gailliot, an officer of Federated Research, the adviser to the Trust, each hold
approximately 15% and 20%, respectively, of the outstanding common stock and
serve as Directors of Commercial Data Services, Inc., a company which provides
computer processing services to Federated Administrative Services, Inc. For the
fiscal years ended November 30, 1993, 1992, and 1991, Federated Administrative
Services, Inc. paid approximately $164,324, $186,144, and $193,178,
respectively, for services provided by Commercial Data Services, Inc.
BROKERAGE TRANSACTIONS
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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 investment adviser will generally use those
who are recognized dealers in specific portfolio instruments, except when a
better price and execution of the order can be obtained elsewhere. The adviser
makes decisions on portfolio transactions and selects brokers and dealers
subject to review by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include:
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 Federated funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
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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 is explained in the prospectus under
"Investing in the Trust."
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
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The Trust attempts to stabilize the value of a Share at $1.00. The days on which
net asset value is calculated by the Trust are described in the prospectus. Net
asset value will not be calculated on Good Friday and on the following holidays:
New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
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 Trust's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with Rule 2a-7 (the "Rule") of 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 Trust's investment objective.
Under the Rule, the Trust is permitted to purchase instruments which are subject
to demand features or standby committments. As defined by the Rule, a demand
feature entitles the Trust 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 the Trust 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
0.5% 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 the Trust limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating 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 the Trust 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 397 days can be
purchased by the Trust.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the
Trust will invest its available cash to reduce the average maturity to 90
days or less as soon as possible.
The Trust 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 shares of
the Trust computed by dividing the annualized daily income on the Trust's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Trust computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
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The Trust redeems Shares at the next computed net asset value after the Trust
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 Trust'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 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 Trust's net
asset value during any 90-day period.
TAX STATUS
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THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Trust
must, among other requirements:
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 Trust is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Because the Trust invests primarily for income and because it normally
holds portfolio instruments to maturity, it is not expected to realize
long-term capital gains.
YIELD
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The Trust's yield for the seven day period ended November 30, 1993 was 2.87%.
The Trust 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 brokers/dealers charge fees in
connection with services provided in conjunction with an investment in the
Trust, the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
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The Trust's effective yield for the seven day period ended November 30, 1993 was
2.91%.
The Trust's effective yield is computed by compounding the annualized 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
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The Trust'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 Trust expenses; and
the relative amount of Trust 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 compute net asset value. The financial
publications and/or indices which the Fund uses in advertising may include:
_DONOGHUE'S MONEY FUND AVERAGE, for example, tracks the average of all major
money market fund yields, published weekly for seven-day and thirty-day yields.
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.
Advertisements and other sales literature for the Trust may refer to total
return. Total return is the historic change in the value of an investment in the
Trust based on the monthly reinvestment of dividends over a specified period of
time.
8010415B (1/94) 9
