TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
PROSPECTUS
The shares of Trust for Short-Term U.S. Government Securities (the "Trust")
offered by this prospectus represent interests in an open-end, management
investment company (a mutual fund). The Trust invests in short-term U.S.
government securities to achieve high current income consistent with stability
of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE
TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE
CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated January 31,
1997, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-341-7400. To
obtain other information, or make inquiries about the Trust, contact the Trust
at the address listed in the back of this prospectus. The Statement of
Additional Information, material incorporated by reference into this document,
and other information regarding the Trust is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated January 31, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Investment Limitations 4
TRUST INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Distribution of Shares 6
Administration of the Trust 6
NET ASSET VALUE 7
- ------------------------------------------------------
HOW TO PURCHASE SHARES 7
- ------------------------------------------------------
HOW TO REDEEM SHARES 8
- ------------------------------------------------------
ACCOUNT AND SHARE INFORMATION 9
- ------------------------------------------------------
TAX INFORMATION 10
- ------------------------------------------------------
Federal Income Tax 10
State and Local Taxes 10
PERFORMANCE INFORMATION 10
- ------------------------------------------------------
FINANCIAL STATEMENTS 11
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 19
- ------------------------------------------------------
ADDRESSES 20
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price)........ None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).............................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)................... None
Exchange Fee......................................................................... None
</TABLE>
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee (after waiver)(1)..................................................... 0.28%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.17%
Shareholder Services Fee (after waiver)(2).............................. 0.05%
Total Operating Expenses(3)................................................ 0.45%
</TABLE>
(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 shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder service
provider can terminate this voluntary waiver at any time at its sole discretion.
The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.77% absent the waivers of
portions of the management fee and the shareholder services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Trust will bear, either
directly or indirectly. For more complete descriptions of the various costs and
expenses, see "Trust Information." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------- ------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming (1) 5% annual
return and (2) redemption at the end of each
time period................................... $5 $14 $25 $57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 19.
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- ------------
INCOME FROM
INVESTMENT
OPERATIONS
- ------------
Net
investment
income 0.05 0.06 0.04 0.03 0.04 0.06 0.08 0.09 0.07 0.06
- ------------ --- --- --- --- --- --- --- --- --- ---
LESS
DISTRIBUTIONS
- ------------
Distributions
from net
investment
income (0.05) (0.06) (0.04) (0.03) (0.04) (0.06) (0.08) (0.09) (0.07) (0.06)
- ------------ --- --- --- --- --- --- --- --- --- ---
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
(A) 5.09% 5.63% 3.70% 2.87% 3.72% 6.10% 8.08% 9.01% 7.05% 6.09%
- ------------
RATIOS TO
AVERAGE NET
ASSETS
- ------------
Expenses 0.45% 0.45% 0.45% 0.45% 0.45% 0.46% 0.45% 0.45% 0.45% 0.45%
- ------------
Net
investment
income 4.98% 5.47% 3.55% 2.82% 3.68% 5.99% 7.79% 8.65% 6.79% 5.90%
- ------------
SUPPLEMENTAL
DATA
- ------------
Net assets,
end of
period (000
omitted) $844,108 $952,757 $1,184,269 $1,730,402 $2,358,748 $2,802,108 $3,603,455 $3,852,650 $3,993,621 $5,148,285
- ------------
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
2
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 accumulating an interest
in a professionally managed portfolio investing only in short-term U.S.
government securities. A minimum initial investment of $25,000 over a 90-day
period is required.
The Trust attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is high current income consistent with
stability of principal and liquidity. While there is no assurance that the Trust
will achieve its investment objective, it endeavors to do so by complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus. The investment objective
and the policies and limitations described below, unless indicated otherwise,
cannot be changed without shareholder approval.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing only in a portfolio of
U.S. government securities maturing in one year or less. As a matter of
operating policy, which may be changed without shareholder approval, the Trust
will limit the average maturity of its portfolio to 90 days or less, in order to
meet regulatory requirements.
ACCEPTABLE INVESTMENTS. The Trust invests only in U.S. government securities.
These instruments are either issued or guaranteed by the U.S. government, its
agencies, or instrumentalities. These securities include, but are not limited
to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial
support to other agencies or instrumentalities, since it is not obligated to do
so. These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
The Trust may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations.
REPURCHASE AGREEMENTS. Certain securities in which the Trust invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that the
seller does not repurchase the securities from the Trust, the Trust could
receive less than the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Trust purchases securities with payment and delivery scheduled for
a future time. The seller's failure to complete these transactions may cause the
Trust to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Trust may pay more or less than the market value of the
securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, the Trust may enter into transactions to
sell its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Trust may realize short-term profits or losses upon the sale of such
commitments.
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust may borrow up to one-third of the value of its total
assets.
The above investment limitations cannot be changed without shareholder approval.
The following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Trust will not invest more than 10% of its net assets in illiquid
securities, including repurchase agreements providing for settlement in more
than seven days after notice.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research, the Trust's investment adviser, subject to direction by the Trustees.
The adviser continually conducts investment research and supervision for the
Trust and is responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Trust's average daily net assets. Under the investment
advisory contract, the adviser will waive the amount, limited to the amount
of the advisory fee, by which the Trust aggregate annual operating
expenses, including the investment advisory fee but excluding interest,
taxes, brokerage commissions, insurance premiums, expenses of registering
and qualifying the Trust and its shares under federal and state laws and
regulations, expenses of withholding taxes, and extraordinary expenses
exceed .45% 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.
ADVISER'S BACKGROUND. Federated Research, a Delaware business trust,
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Research and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. With over $76 billion invested across
more than 338 funds under management and/or administration by its
subsidiaries, as of December 31, 1996, Federated Investors is one of the
largest mutual fund investment managers in the United States. With more
than 2,000 employees, Federated continues to be led by the management who
founded the company in 1955. Federated funds are presently at work in and
through 4,500 financial institutions nationwide.
Both the Trust and the adviser have adopted strict codes of ethics governing the
conduct of all employees who manage the Trust and its portfolio securities.
These codes recognize that such persons owe a fiduciary duty to the Trust's
shareholders and must place the interests of shareholders ahead of the
employees' own interests. Among other things, the codes: require preclearance
and periodic reporting of personal securities transactions; prohibit personal
transactions in securities being purchased or sold, or being considered for
purchase or sale, by the Trust; prohibit purchasing securities in
initial public offerings; and prohibit taking profits on securities held for
less than sixty days. Violations of the codes are subject to review by the
Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25% of the average
daily net asset value of its shares, computed at an annual rate, to obtain
certain personal services for shareholders and to maintain shareholder accounts.
From time to time and for such periods as deemed appropriate, the amount stated
above may be reduced voluntarily. Under the Shareholder Services Agreement,
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp. and
Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer software
programs that emphasize the attributes of the Trust. Such assistance will be
predicated upon the amount of shares the financial institution sells or may
sell, and/or upon the type and nature of sales or marketing support furnished by
the financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of Federated
Investors, provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust at an
annual rate which relates to the average aggregate daily net assets of all funds
advised by affiliates of Federated Investors specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
- ------------ ------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its fee.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Trust attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Trust cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
and Christmas Day.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Trust reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened with a
smaller amount as long as the minimum is reached within 90 days. Minimum
investments will be calculated by combining all accounts maintained with the
Trust. Financial institutions may impose different minimum investment
requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire by
calling the Trust before 3:00 p.m. (Eastern time) to place an order. The order
is considered received immediately. Payment by federal funds must be received
before 3:00 p.m. (Eastern time) that day. Federal funds should be wired as
follows: Federated Shareholder Services Company, c/o State Street Bank and Trust
Company, Boston, MA; Attention: EDGEWIRE; For Credit to: 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 Number 011000028. Shares cannot be purchased by wire
on holidays when wire transfers are restricted. Questions on wire purchases
should be directed to your shareholder services representative at the telephone
number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA 02266-8600.
The check should be made payable to: Trust for Short-Term U.S. Government
Securities. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
AUTOMATIC INVESTMENTS. Investors may establish accounts with their financial
institutions to have cash accumulations automatically invested in the Trust. The
investments may be made on predetermined dates or when the investor's account
reaches a certain level. Participating financial institutions are responsible
for prompt transmission of orders relating to the program, and they may charge
for
their services. Investors should read this prospectus along with the financial
institution's agreement or literature describing these services and fees.
SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single
master accounts. A subaccounting system is available through the transfer agent
to minimize internal recordkeeping requirements. The transfer agent charges a
fee based on the level of subaccounting services rendered. Financial
institutions may charge or pass through subaccounting fees as part of or in
addition to normal trust or agency account fees. They may also charge fees for
other services provided which may be related to the ownership of Trust shares.
This prospectus should, therefore, be read together with any agreement between
the customer and the financial institution with regard to the services provided,
the fees charged for those services, and any restrictions and limitations
imposed.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions will
be made on days on which the Trust computes its net asset value. Redemption
requests must be received in proper form and can be made as described below.
REDEEMING SHARES BY TELEPHONE. Redemptions in minimum amounts of $5,000 may be
made by calling the Trust provided the Trust has a properly completed
authorization form. These forms can be obtained from Federated Securities Corp.
Proceeds from redemption requests received before 3:00 p.m. (Eastern time) will
be wired the same day to the shareholder's account at a domestic commercial bank
which is a member of the Federal Reserve System, but will not include that day's
dividend. Proceeds from redemption requests received after that time include
that day's dividend but will be wired the following business day. Proceeds from
redemption requests on holidays when wire transfers are restricted will be wired
the following business day. Questions about telephone redemptions on days when
wire transfers are restricted should be directed to your shareholder services
representative at the telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If this occurs, "Redeeming Shares By Mail"
should be considered. If at any time the Trust shall determine it necessary to
terminate or modify the telephone redemption privilege, shareholders would be
promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should be
sent unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Trust name; the account name as registered
with the Trust; the account number; and the number of shares to be redeemed or
the dollar amount requested. All owners of the account must sign the request
exactly as the shares are registered. Normally, a check for the
proceeds is mailed within one business day, but in no event more than seven
days, after the receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Trust or a redemption payable other than to
the shareholder of record must have their signatures guaranteed by a commercial
or savings bank, trust company or savings association whose deposits are insured
by an organization which is administered by the Federal Deposit Insurance
Corporation; a member firm of a domestic stock exchange; or any other "eligible
guarantor institution," as defined in the Securities Exchange Act of 1934. The
Trust does not accept signatures guaranteed by a notary public.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on payment dates in additional shares of the Trust
unless cash payments are requested by writing to the Trust. Shares purchased by
wire before 3:00 p.m. (Eastern time) begin earning dividends that day. Shares
purchased by check begin earning dividends the day after the check is converted
into federal funds.
CAPITAL GAINS. The Trust does not expect to realize any capital gains or losses.
If capital gains or losses were to occur, they could result in an increase or
decrease in dividends. The Trust will distribute in cash or additional shares
any realized net long-term capital gains at least once every 12 months.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Trust, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Trust or
Federated Shareholder Services Company in writing. Monthly confirmations are
sent to report all transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts with
low balances, the Trust may redeem shares in any account and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close an
account, the shareholder is notified in writing and allowed 30 days to purchase
additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. The Trust is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in the
Trust's operation and for election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Donnelly & Meck, counsel to the Trust, Trust shares
may be subject to personal property taxes imposed by counties, municipalities,
and school districts in Pennsylvania to the extent that the portfolio securities
in the Trust would be subject to such taxes if owned directly by residents of
those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Trust advertises its yield, effective yield and total
return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
Total return represents the change, over a specified period of time, in the
value of an investment in the Trust after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
From time to time, advertisements for the Trust may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Trust's performance to certain indices.
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM GOVERNMENT OBLIGATIONS--28.9%
- ----------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK NOTES--1.2%
-----------------------------------------------------------------
$ 10,000,000 5.400%-5.600%, 12/2/1996-6/3/1997 $ 9,997,144
----------------------------------------------------------------- ------------
(a) FEDERAL FARM CREDIT BANK, DISCOUNT NOTES--1.0%
-----------------------------------------------------------------
9,000,000 5.170%, 5/27/1997 8,771,228
----------------------------------------------------------------- ------------
(b) FEDERAL FARM CREDIT BANK, FLOATING RATE NOTES--1.9%
-----------------------------------------------------------------
16,000,000 5.410%, 12/3/1996 15,992,748
----------------------------------------------------------------- ------------
FEDERAL HOME LOAN BANK NOTES--0.4%
-----------------------------------------------------------------
3,300,000 5.710%, 11/18/1997 3,299,005
----------------------------------------------------------------- ------------
(a) FEDERAL HOME LOAN BANK, DISCOUNT NOTES--15.5%
-----------------------------------------------------------------
132,750,000 5.170%-5.500%, 12/31/1996-5/30/1997 130,965,077
----------------------------------------------------------------- ------------
(b) FEDERAL HOME LOAN BANK, FLOATING RATE NOTES--5.2%
-----------------------------------------------------------------
44,000,000 5.195%-5.420%, 12/3/1996-12/23/1996 43,972,492
----------------------------------------------------------------- ------------
STUDENT LOAN MARKETING ASSOCIATION NOTES--0.5%
-----------------------------------------------------------------
4,000,000 5.620%, 6/30/1997 3,991,747
----------------------------------------------------------------- ------------
(b) STUDENT LOAN MARKETING ASSOCIATION, FLOATING RATE NOTES--3.2%
-----------------------------------------------------------------
27,000,000 5.350%-5.410%, 12/3/1996 26,992,315
----------------------------------------------------------------- ------------
TOTAL SHORT-TERM GOVERNMENT OBLIGATIONS 243,981,756
----------------------------------------------------------------- ------------
SHORT-TERM U.S. TREASURY OBLIGATIONS--11.6%
- ----------------------------------------------------------------------------------------
(a) U.S. TREASURY BILLS--1.6%
-----------------------------------------------------------------
14,000,000 4.925%-5.360%, 3/6/1997-8/21/1997 13,738,839
----------------------------------------------------------------- ------------
U.S. TREASURY NOTES--10.0%
-----------------------------------------------------------------
84,500,000 5.625%-8.50%, 11/30/1996-9/30/1997 84,764,169
----------------------------------------------------------------- ------------
TOTAL SHORT-TERM U.S. TREASURY OBLIGATIONS 98,503,008
----------------------------------------------------------------- ------------
REPURCHASE AGREEMENTS--62.8%
- ----------------------------------------------------------------------------------------
12,500,000 (c) Barclays de Zoete Wedd Securities, Inc., 5.720%, dated
11/29/1996, due 12/2/1996 12,500,000
-----------------------------------------------------------------
30,000,000 (c) Dean Witter Reynolds, Inc., 5.720%, dated 11/29/1996, due
12/2/1996 30,000,000
-----------------------------------------------------------------
35,000,000 (c) Deutsche Bank Government Securities, Inc., 5.700%, dated
11/29/1996, due 12/2/1996 35,000,000
-----------------------------------------------------------------
</TABLE>
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ------------ ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
REPURCHASE AGREEMENTS--CONTINUED
- ----------------------------------------------------------------------------------------
$ 40,000,000 (c) Dresdner Securities (USA), Inc., 5.420%, dated 11/27/1996, due
12/2/1996 $ 40,000,000
-----------------------------------------------------------------
175,000,000 (c) Fuji Government Securities, Inc., 5.730%, dated 11/29/1996, due
12/2/1996 175,000,000
-----------------------------------------------------------------
30,000,000 (c) Greenwich Capital Markets, Inc., 5.720%, dated 11/29/1996, due
12/2/1996 30,000,000
-----------------------------------------------------------------
35,000,000 (c) Nesbitt Burns Securities, Inc., 5.710%, dated 11/29/1996, due
12/2/1996 35,000,000
-----------------------------------------------------------------
25,000,000 (c) PaineWebber, Group Inc., 5.730%, dated 11/29/1996, due 12/2/1996 25,000,000
-----------------------------------------------------------------
35,000,000 (c) Swiss Bank Capital Markets, 5.700%, dated 11/29/1996, due
12/2/1996 35,000,000
-----------------------------------------------------------------
40,000,000 (c) Toronto Dominion Securities (USA) Inc., 5.400%, dated 11/27/1996,
due 12/2/1996 40,000,000
-----------------------------------------------------------------
35,000,000 (c) UBS Securities, Inc., 5.730%, dated 11/29/1996, due 12/2/1996 35,000,000
-----------------------------------------------------------------
18,000,000 (d) CS First Boston, Inc., 6.250%, dated 11/19/1996, due 1/2/1997 18,000,000
-----------------------------------------------------------------
20,000,000 (c)(e) Morgan Stanley Group, Inc., 5.330%, dated 10/17/1996,
due 1/16/1997 20,000,000
----------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 530,500,000
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (AT AMORTIZED COST)(F) $872,984,764
----------------------------------------------------------------- ------------
</TABLE>
(a) Each issue shows the effective yield.
(b) Denotes variable rate obligations for which current rates and next reset
dates are shown.
(c) The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in a
joint account with other Federated funds.
(d) Represents a forward commitment for the delayed delivery of securities,
which will settle and be collateralized on December 31, 1996. The fair value
of the forward commitment approximates the contract amount at November 30,
1996. Risks may arise upon entering these contracts from the potential
inability of counterparts to meet the terms of their contracts and from
unanticipated movements in security prices.
(e) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days.
(f) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($844,108,306) at November 30, 1996.
(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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements $530,500,000
- -----------------------------------------------------------------
Investments in securities 342,484,764
- ----------------------------------------------------------------- ------------
Total investments in securities, at amortized cost and value $872,984,764
- --------------------------------------------------------------------------------
Cash 867,433
- --------------------------------------------------------------------------------
Income receivable 2,928,821
- --------------------------------------------------------------------------------
Receivable for shares sold 9,922,128
- -------------------------------------------------------------------------------- ------------
Total assets 886,703,146
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $ 27,991,296
- -----------------------------------------------------------------
Payable for shares redeemed 11,570,024
- -----------------------------------------------------------------
Income distribution payable 2,944,078
- -----------------------------------------------------------------
Accrued expenses 89,442
- ----------------------------------------------------------------- ------------
Total liabilities 42,594,840
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 844,108,306 shares outstanding $844,108,306
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
$844,108,306 / 844,108,306 shares outstanding $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
STATEMENT OF OPERATIONS
YEAR ENDED NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -----------------------------------------------------------------------------------
Interest $47,173,572
- -----------------------------------------------------------------------------------
EXPENSES:
- -----------------------------------------------------------------------------------
Investment advisory fee $ 3,475,000
- --------------------------------------------------------------------
Administrative personnel and services fee 656,745
- --------------------------------------------------------------------
Custodian fees 149,267
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 43,006
- --------------------------------------------------------------------
Directors'/Trustees' fees 21,658
- --------------------------------------------------------------------
Auditing fees 16,418
- --------------------------------------------------------------------
Legal fees 16,806
- --------------------------------------------------------------------
Portfolio accounting fees 116,769
- --------------------------------------------------------------------
Shareholder services fee 2,171,875
- --------------------------------------------------------------------
Share registration costs 23,201
- --------------------------------------------------------------------
Printing and postage 10,423
- --------------------------------------------------------------------
Insurance premiums 8,877
- --------------------------------------------------------------------
Taxes 13,387
- --------------------------------------------------------------------
Miscellaneous 2,670
- -------------------------------------------------------------------- -----------
Total expenses 6,726,102
- --------------------------------------------------------------------
Waivers--
- --------------------------------------------------------------------
Waiver of investment advisory fee $(1,042,638)
- ------------------------------------------------------
Waiver of shareholder services fee (1,737,500)
- ------------------------------------------------------ -----------
Total waivers (2,780,138)
- -------------------------------------------------------------------- -----------
Net expenses 3,945,964
- ----------------------------------------------------------------------------------- -----------
Net investment income $43,227,608
- ----------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
----------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------------------
OPERATIONS--
- ------------------------------------------------------------
Net investment income $ 43,227,608 $ 56,767,637
- ------------------------------------------------------------ --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- ------------------------------------------------------------
Distributions from net investment income (43,227,608) (56,767,637)
- ------------------------------------------------------------ --------------- ---------------
SHARE TRANSACTIONS--
- ------------------------------------------------------------
Proceeds from sale of shares 3,693,374,650 5,427,561,959
- ------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 5,768,359 6,759,749
- ------------------------------------------------------------
Cost of shares redeemed (3,807,791,877) (5,665,833,600)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets resulting from share transactions (108,648,868) (231,511,892)
- ------------------------------------------------------------ --------------- ---------------
Change in net assets (108,648,868) (231,511,892)
- ------------------------------------------------------------
NET ASSETS:
- ------------------------------------------------------------
Beginning of period 952,757,174 1,184,269,066
- ------------------------------------------------------------ --------------- ---------------
End of period $ 844,108,306 $ 952,757,174
- ------------------------------------------------------------ --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Trust for Short-Term U.S. Government Securities (the "Trust") is registered
under the Investment Company Act of 1940, as amended (the "Act"), as an open-end
management investment company. The investment objective of the Trust is high
current income consistent with stability of principal and liquidity.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Trust uses the amortized cost method to value
its portfolio securities in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under repurchase
agreement transactions. Additionally, procedures have been established by
the Trust to monitor, on a daily basis, the market value of each repurchase
agreement's collateral to ensure that the value of collateral at least
equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the
"Trustees"). Risks may arise from the potential inability of counterparties
to honor the terms of the repurchase agreement. Accordingly, the Trust
could receive less than the repurchase price on the sale of collateral
securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------
maintains security positions such that sufficient liquid assets will be
available to make payment for the securities purchased. Securities
purchased on a when-issued or delayed delivery basis are marked to market
daily and begin earning interest on the settlement date.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1996, capital paid-in aggregated $844,108,306. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------------
1996 1995
- ------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Shares sold 3,693,374,650 5,427,561,959
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 5,768,359 6,759,749
- ------------------------------------------------------------
Shares redeemed (3,807,791,877) (5,665,833,600)
- ------------------------------------------------------------ -------------- --------------
Net change resulting from share transactions (108,648,868) (231,511,892)
- ------------------------------------------------------------ -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Research, the Trust's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.40% of the Trust's average daily net assets. The Adviser will waive, to the
extent of its advisory fee, the amount, if any, by which the Trust's aggregate
annual operating expenses exceed 0.45% of average daily net assets of the Trust.
ADMINISTRATIVE FEE--Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. This fee is based on the level of average aggregate
daily net assets of all funds advised by subsidiaries of Federated Investors for
the period. The administrative fee received during the period of the
Administrative Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE--Under the terms of a Shareholder Services Agreement
with Federated Shareholder Services ("FSS"), the Trust will pay FSS up to 0.25%
of average daily net assets of the Trust for the period. This fee is to obtain
certain services for shareholders and to maintain shareholder
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
- --------------------------------------------------------------------------------
accounts. FSS may voluntarily choose to waive any portion of its fee. FSS can
modify or terminate this voluntary waiver at any time at its sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES--FServ through its
subsidiary, Federated Shareholder Services Company ("FSSC"), serves as transfer
and dividend disbursing agent for the Trust. The fee paid to FSSC is based on
the size, type, and number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES--FServ maintains the Trust's accounting records for
which it receives a fee. The fee is based on the level of the Trust's average
daily net assets for the period, plus out-of-pocket expenses.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
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, 1996, the related statement of operations for the year then
ended, the statement of changes in net assets for the years ended November 30,
1996 and 1995, and the financial highlights for each of the periods presented.
These financial statements and financial highlights are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at November
30, 1996, by correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, 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, 1996, 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 LLP
Pittsburgh, Pennsylvania
January 10, 1997
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Trust for Short-Term U.S. Government Securities
Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Research Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank & P.O. Box 8600
Trust Company Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company P.O. Box 8600
Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, PA 15222-5401
- ------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRUST FOR SHORT-TERM
U.S. GOVERNMENT
SECURITIES
PROSPECTUS
An Open-End, Management
Investment Company
Prospectus dated January 31, 1997
LOGO
CUSIP 898331103
8010415A (1/97)
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, 1997. This Statement is not a prospectus.
You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated January 31, 1997
FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 898331103
8010415B (1/97)
INVESTMENT POLICIES 1
Acceptable Investments 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 1
INVESTMENT LIMITATIONS 1
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES
MANAGEMENT 3
Share Ownership 6
Trustee Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 8
Investment Adviser 8
Advisory Fees 8
BROKERAGE TRANSACTIONS 8
OTHER SERVICES 8
Trust Administration 8
Custodian and Portfolio Accountant 8
Transfer Agent 9
Independent Auditors 9
DETERMINING NET ASSET VALUE 9
SHAREHOLDER SERVICES 9
REDEMPTION IN KIND 9
MASSACHUSETTS PARTNERSHIP LAW 10
THE TRUST'S TAX STATUS 10
PERFORMANCE INFORMATION 10
Yield 10
Effective Yield 10
Total Return 10
Performance Comparisons 11
Economic and Market Information 11
ABOUT FEDERATED INVESTORS 11
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may not be changed
by the Board of Trustees without shareholder approval.
ACCEPTABLE INVESTMENTS
Some of the short-term U.S. government securities the Trust may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate. Variable interest rates will reduce the changes in the
market value of such securities from their original purchase prices.
Accordingly, the potential for capital appreciation or capital
depreciation should not be greater than that of fixed interest rate U.S.
government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S. government securities. The
Trust may purchase variable rate U.S. government securities upon the
determination by the Board of Trustees that the interest rate as adjusted
will cause the instrument to have a current market value that approximates
its par value on the adjustment date.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Trust sufficient to make payment for the securities to be purchased are
segregated on the Trust`s records at the trade date. These assets are
marked to market daily and are maintained until the transaction has been
settled. The Trust does not intend to engage in when-issued and delayed
delivery transactions to an extent that would cause the segregation of more
than 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust or its custodian will take possession of the securities subject
to repurchase agreements, and these securities will be marked to market
daily. In the event that a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Trust might be delayed
pending court action. The Trust believes that under the regular procedures
normally in effect for custody of the Trust's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in
favor of the Trust and allow retention or disposition of such securities.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Trust will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Trust will not issue senior securities except that the Trust may borrow
money in amounts up to one-third of the value of its total assets,
including the amounts borrowed.
The Trust will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate management
of the portfolio by enabling the Trust to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.The Trust will not purchase any securities while borrowings
in excess of 5% of the value of its total assets are outstanding.
PLEDGING ASSETS
The Trust will not pledge securities.
LENDING CASH OR SECURITIES
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, policies, and limitations or the Trust's Declaration
of Trust.
INVESTING IN COMMODITIES
The Trust will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Trust will not purchase or sell real estate, including limited
partnership interests.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Trust will not acquire voting securities of other investment companies,
except as part of a merger, consolidation, or other acquisition.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets,
the Trust will not purchase securities of any one issuer (other than cash,
cash items, or securities issued or guaranteed by the government of the
United States or its agencies or instrumentalities and repurchase
agreements collateralized by such U.S. government securities) if as a
result more than 5% of the value of its total assets would be invested in
the securities of that issuer, or if it would own more than 10% of the
outstanding voting securities of that issuer.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material
change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Trust will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined
to be liquid under criteria established by the Trustees and repurchase
agreements providing for settlement in more than seven days after notice.
INVESTING FOR CONTROL
The Trust will not invest in securities of a company for the purpose of
exercising control or management.
For purposes of the above limitations, the Trust considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits
in excess of $100,000,000 at the time of investment to be `cash items.''
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not result
in a violation of such limitation.
The Trust did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present
intent to do so during the coming fiscal year.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of
and regulations under the Investment Company Act of 1940. In particular,
the Trust will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. The Trust will determine the effective
maturity of its investments according to Rule 2a-7. The Trust may change
these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
TRUST FOR SHORT-TERM U.S. GOVERNMENT SECURITIES MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Trust For Short-Term U.S. Government Securities, and
principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series
II; Cash Trust Series, Inc. ; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated Adjustable Rate U.S. Government Fund,
Inc.; Federated American Leaders Fund, Inc.; Federated ARMs Fund; Federated
Equity Funds; Federated Equity Income Fund, Inc.; Federated Fund for U.S.
Government Securities, Inc.; Federated GNMA Trust; Federated Government
Income Securities, Inc.; Federated Government Trust; Federated High Income
Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated
Institutional Trust; Federated Insurance Series; Federated Investment
Portfolios; Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities Fund,
Inc.; Federated Municipal Trust; Federated Short-Term Municipal Trust;
Federated Short-Term U.S. Government Trust; Federated Stock and Bond Fund,
Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income
Securities, Inc.; High Yield Cash Trust; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government
Money Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; Peachtree Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The
Planters Funds; The Starburst Funds; The Starburst Funds II; The Virtus
Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust`s
outstanding shares.
As of January 2, 1997, the following shareholder of record owned 5% or more
of the outstanding shares of the Trust: Fleet Securities Corp, Rochester,
New York, owned approximately 111,479,122 (13.54%) shares.
TRUSTEE COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX +
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley++ $1,852.54 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr. $2,038.08 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland $2,038.08 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
James E. Dowd $2,038.08 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D. $1,852.54 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr. $2,038.08 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $1,852.54 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Gregor F. Meyer $1,852.54 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr., $1,852.54 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $1,852.54 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $1,852.54 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended November 30, 1996.
#The aggregate compensation is provided for the Trust which is comprised of
1 portfolio.
+The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Trust's investment adviser is Federated Research. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Research receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
November 30, 1996, 1995, and 1994, the adviser earned $3,475,000,
$4,148,166, and $5,919,255, respectively, of which $1,042,638, $1,260,227,
and $1,442,536, respectively, were waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Trust or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Trust and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. During the fiscal year ended November 30, 1996, the
Trust paid no brokerage commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Trust or
the size of the position obtained or disposed of by the Trust. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described
in the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Trust's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Services Company, Federated Administrative Services and Federated
Administrative Services, Inc. may hereinafter collectively be referred to
as the `Administrators.'' For the fiscal years ended November 30, 1996,
1995, and 1994, the Administrators earned $656,745, $785,041, and
$1,007,251, respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Trust's portfolio investments. The fee paid for this service is based
upon the level of the Trust's average net assets for the period plus out-
of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
size, types, and numbers of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP,
Pittsburgh, PA.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Trust computed by dividing the annualized daily income on the
Trust's portfolio by the net asset value computed as above may tend to be
higher than a similar computation made by using a method of valuation based
upon market prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Trust's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5% 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.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services to cause services to be provided which are necessary for the
maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include but are not limited to providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other
personnel as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries; and assisting clients in changing dividend options,
account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that
the fund will benefit by: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping systems; and
(4) responding promptly to shareholders' requests and inquiries concerning
their accounts.
For the fiscal year ended November 30, 1996, the Trust paid shareholder
service fees in the amount of $2,171,875 of which $1,737,500 was waived.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1%
of the Trust's net asset value, whichever is less, for any one shareholder
within a 90-day period. Any redemption beyond this amount will also be in
cash unless the Trustees determine that further payments should be in kind.
In such cases, the Trust will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Trust
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is
not as liquid as a cash redemption. If redemption is made in kind,
shareholders who sell these securities could receive less than the
redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
its shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of its shareholders for acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for the
Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against
them.
THE TRUST'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Trust must, among other requirements: derive at least 90%
of its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its
net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in shares of the Trust, the performance will be reduced for
those shareholders paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the `base period.'' This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares; dividing the
net change in the account's value by the value of the account at the
beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7.
The Trust's yield for the seven-day period ended November 30, 1996 was
5.02%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result. The Trust's effective
yield for the seven-day period ended November 30, 1996 was 5.14%.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period
by the net asset value per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the monthly reinvestment of all
dividends and distributions.
The Trust's average annual total returns for the one-year, five-year and
ten-year periods endedNovember 30, 1996, 1991 and 1986 were 5.09%, 4.20%
and 5.72%, respectively.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Trust
uses in advertising may include:
OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
oIBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of
money market funds weekly. Donoghue's Money Market Insight
publication reports monthly and 12-month-to-date investment results
for the same money funds.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust`s returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by the Trust portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including growth of the
industry, from sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1996, Federated Investors managed
more than $50.3 billion in assets across 50 money market funds, including
18 government, 11 prime and 21 municipal with assets approximating $28.0
billion, $12.8 billion and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide -- we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country -- supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Federated Securities Corp.
* Source: Investment Company Institute
