|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous: HUGHES ELECTRONICS CORP, 8-K, 2000-11-20 |
Next: HOUSEHOLD FINANCE CORP HOUSEHOLD CONSUMER LN TRUST 1995-1 /, 8-K, 2000-11-20 |
Federated Investors
World-Class Investment Manager
<R>
</R>
<R>
(Formerly, Federated U.S. Government Securities Fund: 5-10 Years)
</R>
<R>
</R>
<R>
April 30, 2000 (Revised on November 20, 2000)
</R>
<R>
A mutual fund seeking total return consistent with current income by investing in a portfolio of intermediate-term U.S. government and government agency securities, including mortgage-backed securities.
</R>
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 6
<R>
What are the Specific Risks of Investing in the Fund? 9
</R>
<R>
What Do Shares Cost? 10
</R>
<R>
How is the Fund Sold? 10
</R>
<R>
How to Purchase Shares 11
</R>
<R>
How to Redeem Shares 13
</R>
<R>
Account and Share Information 15
</R>
<R>
Who Manages the Fund? 16
</R>
<R>
Financial Information 17
</R>
<R>
Report of Ernst & Young LLP, Independent Auditors 28
</R>
The Fund's investment objective is to pursue total return consistent with current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.
The Fund's total return will consist of two components: (1) changes in the market value of its portfolio securities (both realized and unrealized appreciation); and (2) income received from its portfolio securities. The Fund expects that income will comprise the largest component of its total return.
<R>
The Fund invests in a diversified, intermediate-term portfolio of securities that are issued or guaranteed by the U.S. government and its agencies or instrumentalities, including mortgage-backed securities that are issued by U.S. government agencies or instrumentalities. The Fund maintains a dollar-weighted average portfolio duration relative to that of the Lehman Brothers Government Bond Index (LBGB). Duration measures the price sensitivity of a fixed income security to changes in interest rates. The LBGB is composed of U.S. government and government agency bonds.
</R>
<R>
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns are as follows:
</R>
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.
The bar chart shows the variability of the Fund's Institutional Shares on a calendar year-end basis.
The Fund's Institutional Shares are not sold subject to a sales charge (load). The total returns displayed above are based upon the net asset value.
The Fund's Institutional Shares total return as of the most recent calendar quarter of March 31, 2000 was 2.32%.
Within the period shown in the Chart, the Fund's Institutional Shares highest quarterly return was 7.45% (quarter ended September 30, 1998). Its lowest quarterly return was (2.85%) (quarter ended March 31, 1996).
<R>
The following table represents the Fund's Institutional Shares Average Annual Total Returns for the calendar periods ended December 31, 1999. The table shows the Fund's total returns averaged over a period of years relative to the Merrill Lynch 5-10 Year Treasury Index (ML5-10T), a broad-based market index. Effective November 20, 2000, the Fund revised its investment strategy to permit the Fund to invest in a broader range of government securities (particularly mortgage-backed securities) than was previously permitted. Accordingly, the Fund's Adviser has elected to add the LBGB, an index composed of U.S. government and government agency bonds, as an additional benchmark which is representative of the securities in which the Fund intends to invest. Total returns for the indexes shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
</R>
|
Calendar Period |
|
Fund |
|
ML5-10T |
|
<R>LBGB</R> |
|
1 Year |
|
(3.87%) |
|
(3.87%) |
|
<R>(2.23%)</R> |
|
Start of Performance1 |
|
5.20% |
|
5.35% |
|
<R> 5.75%</R> |
1 The Fund's Institutional Shares start of performance date was October 19, 1995.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund's Institutional Shares.
|
Shareholder Fees |
|
|
|
Fees Paid Directly From Your Investment |
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
|
None |
|
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) |
|
None |
|
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price) |
|
None |
|
Redemption Fee (as a percentage of amount redeemed, if applicable) |
|
None |
|
Exchange Fee |
|
None |
|
|
|
|
|
Annual Fund Operating Expenses (Before Reimbursement and Waivers)1 |
|
|
|
Expenses That are Deducted From Fund Assets (as a percentage of average net assets) |
|
|
|
Management Fee2 |
|
0.50% |
|
Distribution (12b-1) Fee |
|
None |
|
Shareholder Services Fee3 |
|
0.25% |
|
Other Expenses4 |
|
0.37% |
|
Total Annual Fund Operating Expenses |
|
1.12% |
|
1 Although not contractually obligated to do so, the adviser and shareholder services provider waived and reimbursed certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ending February 29, 2000. |
||
|
Total Reimbursement and Waivers of Fund Expenses |
|
0.82% |
|
Total Actual Annual Fund Operating Expenses (after reimbursement and waivers) |
|
0.30% |
|
2 The adviser voluntarily waived the management fee. The adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.00% for the fiscal year ended February 29, 2000. |
||
|
3 A portion of the shareholder services fee was voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Institutional Shares (after the voluntary waiver) was 0.04% for the fiscal year ended February 29, 2000. |
||
|
4 The adviser voluntarily reimbursed certain operating expenses of the Fund. The adviser can terminate this voluntary reimbursement at any time. Total other expenses paid by the Fund (after the voluntary reimbursement) was 0.26% for the fiscal year ended February 29, 2000. |
||
This Example is intended to help you compare the cost of investing in the Fund's Institutional Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Shares for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Shares operating expenses are before reimbursements and waivers as shown in the Table and remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
|
1 Year |
$ |
113 |
|
|
||
|
3 Years |
$ |
353 |
|
|
||
|
5 Years |
$ |
612 |
|
|
||
|
10 Years |
$ |
1,352 |
|
|
||
<R>
The Fund invests in a portfolio of intermediate-term securities that are issued or guaranteed by the U.S. government and its agencies or instrumentalities, including mortgage-backed securities that are issued by U.S. government agencies or instrumentalities. The Fund's adviser actively manages its portfolio, seeking to limit the interest rate risk taken by the Fund while selecting investments that should offer enhanced returns based upon the adviser's interest rate outlook.
</R>
<R>
The adviser manages the Fund's interest rate risk by limiting the dollar-weighted average duration of its portfolio securities. "Duration" measures the sensitivity of a security's price to changes in interest rates. The greater a portfolio's average duration, the greater the change in the portfolio's value in response to a change in market interest rates. As a matter of investment policy, under normal market conditions, the adviser limits the average duration of the portfolio relative to that of the LBGB. This policy should prevent the volatility of the Fund's share price from significantly exceeding the average volatility of intermediate-term government securities.
</R>
<R>
The adviser may seek to increase the Fund's total return by lengthening or shortening duration from time to time based on its interest rate outlook. If the Adviser expects interest rates to decline, it will generally lengthen the Fund's duration. If the Adviser expects interest rates to increase, it will generally shorten the Fund's duration. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions by analyzing a variety of factors, such as:
</R>
<R>
There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates in particular will be successful.
</R>
<R>
In addition to managing the Fund's portfolio duration, the Adviser seeks to enhance the Fund's total return through its allocation of the Fund's holdings between U.S. government mortgage-backed securities and other types of U.S. government securities. Mortgage-backed securities generally offer higher yields versus other government securities of comparable duration in order to compensate for prepayment risk. Prepayment risk is the unscheduled partial or complete payment of the principal outstanding on the underlying mortgage loans by the homeowners. The Adviser attempts to limit prepayment risk by selecting those mortgage-backed securities with characteristics which make prepayments less likely.
</R>
<R>
The Adviser increases the portfolio's mortgage-backed securities component when, in the opinion of the Adviser, mortgage-backed securities have an attractive current and expected yield "spread" versus Treasury securities. (The spread is the difference between the yield of a security versus the yield of a U.S. Treasury security with comparable average life). The Adviser may also attempt to take advantage of current and potential yield differentials existing from time to time between various government mortgage-backed securities in order to increase the Fund's return.
</R>
<R>
The Adviser may use collateralized mortgage obligations ("CMOs") with relatively predictable cash flows (such as sequential pay, planned amortization class and targeted amortization class) to reduce prepayment risk. CMOs in which the Fund invests are issued by agencies or instrumentalities of the U.S. government.
</R>
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
<R>
</R>
Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
<R>
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as Treasury securities.
</R>
<R>
The Fund treats mortgage-backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage-backed securities.
</R>
<R>
</R>
<R>
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities.
</R>
<R>
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
</R>
<R>
The following describes the principal types of fixed income securities in which the Fund may invest:
</R>
<R>
</R>
<R>
Mortgage-backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates.
</R>
<R>
Mortgage-backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage-backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments on to the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
</R>
<R>
The Fund may invest in mortgage-backed securities primarily by investing in another investment company (which is not available for general investment by the public) that owns those securities and that is advised by an affiliate of the Adviser. This other investment company is managed independently of the Fund and may incur additional administrative expenses. Therefore, any such investment by the Fund may be subject to duplicative expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the potential additional expenses. The Fund may also invest in such securities directly.
</R>
<R>
</R>
<R>
CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage-backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of repayment risk of CMOs depends upon the structure of the CMOs. However, the actual returns of any type of mortgage-backed security depends upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
</R>
<R>
</R>
<R>
In a sequential pay CMO, one class of CMOs receives all principal payments and prepayments. The next class of CMOs receives all principal payments after the first class is paid off. This process repeats for each sequential class of CMO. As a result, each class of sequential pay CMOs reduces the pre-payment risks of subsequent classes.
</R>
<R>
</R>
<R>
More sophisticated CMOs include planned amortization classes (PACs) and targeted amortization classes (TACs). PACs and TACs are issued with companion classes. PACs and TACs receive principal payments and repayments at a specified rate. The companion classes receive principal payments and prepayments in excess of the specified rate. In addition, PACs will receive the companion classes' share of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs and TACs to control prepayment risks by increasing the risks to their companion classes.
</R>
<R>
</R>
<R>
</R>
<R>
Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price exceeds the sale price, reflecting the Fund's return on the transaction. This return is unrelated to the interest rate on the underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the Adviser.
</R>
<R>
</R>
<R>
Delayed delivery transactions, including when-issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transaction when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.
</R>
<R>
</R>
<R>
As with other delayed delivery transactions, a seller agrees to issue a TBA security at a future date. However, the seller does not specify the particular securities to be delivered. Instead, the Fund agrees to accept any security that meets specified terms. For example, in a TBA mortgage-backed transaction, the Fund and the seller would agree upon the issuer, interest rate and terms of the underlying mortgages. The seller would not identify the specific underlying mortgages until it issues the security. TBA mortgage-backed securities increase interest rate risks because the underlying mortgages may be less favorable than anticipated by the Fund.
</R>
<R>
</R>
<R>
Dollar rolls are transactions where the Fund sells mortgage-backed securities with a commitment to buy similar, but not identical, mortgage-backed securities on a future date at a lower price. Normally, one or both securities involved are TBA mortgage-backed securities. Dollar rolls are subject to interest rate risks and credit risks.
</R>
<R>
</R>
<R>
In order to secure its obligations in connection with derivatives contracts or special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.
</R>
<R>
</R>
<R>
Unlike traditional fixed income securities, which may pay a fixed rate of interest until maturity, when the entire principal amount is due, payments on mortgage-backed securities include both interest and a partial payment of principal. This partial payment of principal may be composed of a scheduled principal payment as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled payments of principal can adversely affect the price and yield of mortgage-backed securities.
</R>
<R>
For example, during periods of declining interest rates, prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds at the lower interest rates then available. In addition, like other interest-bearing securities, the values of mortgage-backed securities generally fall when interest rates rise. Since rising interest rates generally result in decreased prepayments of mortgage-backed securities, this could cause mortgage securities to have greater average lives than expected and their value may decline more than other fixed income securities. Conversely, when interest rates fall, their potential for capital appreciation is limited due to the existence of the prepayment feature.
</R>
<R>
Generally, mortgage-backed securities compensate for greater prepayment risk by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage-backed security and the yield of a U.S. Treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the security to decline. Spreads generally increase in response to adverse economic or market conditions.
</R>
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in the prospectus) it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
<R>
The required minimum initial investment for Fund Shares is $250,000. There is no required minimum subsequent investment amount.
</R>
<R>
An account may be opened with a smaller amount as long as the $250,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
</R>
The Fund offers two share classes: Institutional Shares and Institutional Service Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Shares. Each share class has different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to accounts for which financial institutions act in a fiduciary or agency capacity, or to other accounts where the financial institution maintains master accounts with an aggregate investment of at least $400 million in certain funds which are advised or distributed by affiliates of Federated Investors, Inc. (Federated) or to individuals, directly or through investment professionals.
The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated.
You may purchase Shares through an investment professional or directly from the Fund. The Fund reserves the right to reject any request to purchase Shares.
Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."
You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are restricted.
Make your check payable to The Federated Funds, note your account number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third-party checks (checks originally payable to someone other than you or The Federated Funds). Orders by mail are considered received and begin earning dividends when payment by check is converted into federal funds (normally the business day after the check is received).
Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.
You should redeem Shares:
Submit your redemption request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have completed the appropriate authorization form for telephone transactions. If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
Call your investment professional or the Fund if you need special instructions.
Signatures must be guaranteed if:
A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.
Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:
Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:
You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.
The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.
The Fund no longer issues share certificates. If you are redeeming Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption request. For your protection, send your certificates by registered or certified mail, but do not endorse them.
You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.
The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.
Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.
The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains. Redemptions are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.
The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 176 mutual funds and separate accounts, which totaled approximately $125 billion in assets as of December 31, 1999. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,900 employees. More than 4,000 investment professionals make Federated Funds available to their customers.
Susan M. Nason has been the Fund's Portfolio Manager since its inception. She is Vice President of the Fund. Ms. Nason joined Federated in 1987 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her M.S.I.A. concentrating in Finance from Carnegie Mellon University.
<R>
</R>
<R>
Kathleen M. Foody-Malus has been the Fund's Portfolio Manager since November 2000. She is Vice President of the Fund. Ms. Foody-Malus joined Federated in 1983 and has been a Senior Portfolio Manager since 1996 and a Vice President of the Fund's Adviser since 1993. She was a Portfolio Manager and a Vice President of the Fund's Adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the University of Pittsburgh.
</R>
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.
The following Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years, or since inception, if the life of the Fund is shorter. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by Ernst & Young LLP, Independent Auditors whose report, along with the Fund's audited financial statements, is included in this prospectus.
(For a Share Outstanding Throughout Each Period)
Reference is made to the Report of Independent Auditors on page 28.
|
|
|
Year |
|
|
Year Ended February 28, |
|
Period |
|
|||||||
|
|
|
2/29/2000 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
|
2/29/1996 |
1 |
|
Net Asset Value, Beginning of Period |
|
$10.24 |
|
|
$10.22 |
|
|
$ 9.77 |
|
|
$ 9.98 |
|
|
$10.00 |
|
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.54 |
|
|
0.55 |
|
|
0.59 |
|
|
0.59 |
|
|
0.21 |
|
|
Net realized and unrealized gain (loss) on investments |
|
(0.64 |
) |
|
0.12 |
|
|
0.47 |
|
|
(0.21 |
) |
|
(0.02 |
) |
|
|
|||||||||||||||
|
TOTAL FROM INVESTMENT OPERATIONS |
|
(0.10 |
) |
|
0.67 |
|
|
1.06 |
|
|
0.38 |
|
|
0.19 |
|
|
|
|||||||||||||||
|
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
(0.54 |
) |
|
(0.55 |
) |
|
(0.59 |
) |
|
(0.59 |
) |
|
(0.21 |
) |
|
Total distributions from net realized gain on investments |
|
(0.02 |
) |
|
(0.10 |
) |
|
(0.02 |
) |
|
-- |
|
|
-- |
|
|
|
|||||||||||||||
|
TOTAL DISTRIBUTIONS |
|
(0.56 |
) |
|
(0.65 |
) |
|
(0.61 |
) |
|
(0.59 |
) |
|
(0.21 |
) |
|
|
|||||||||||||||
|
Net Asset Value, End of Period |
|
$ 9.58 |
|
|
$10.24 |
|
|
$10.22 |
|
|
$ 9.77 |
|
|
$ 9.98 |
|
|
|
|||||||||||||||
|
Total Return2 |
|
(0.96 |
%) |
|
6.58 |
% |
|
11.09 |
% |
|
3.98 |
% |
|
1.85 |
% |
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Expenses |
|
0.30 |
% |
|
0.30 |
% |
|
0.30 |
% |
|
0.13 |
% |
|
0.11 |
%3 |
|
|
|||||||||||||||
|
Net investment income |
|
5.45 |
% |
|
5.27 |
% |
|
5.84 |
% |
|
6.06 |
% |
|
5.75 |
%3 |
|
|
|||||||||||||||
|
Expense waivers/reimbursement4 |
|
0.82 |
% |
|
0.94 |
% |
|
1.69 |
% |
|
3.95 |
% |
|
12.26 |
%3 |
|
|
|||||||||||||||
|
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Net assets, end of period (000 omitted) |
|
$53,675 |
|
|
$85,534 |
|
|
$39,712 |
|
|
$15,225 |
|
|
$4,181 |
|
|
|
|||||||||||||||
|
Portfolio turnover |
|
90 |
% |
|
85 |
% |
|
49 |
% |
|
57 |
% |
|
29 |
% |
|
|
|||||||||||||||
1 Reflects operations for the period from October 19, 1995 (date of initial public investment) to February 29, 1996. For the period from September 5, 1995 (start of business) to October 18, 1995, the investment income was distributed to the Fund's administrator.
2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
3 Computed on an annualized basis
4 This voluntary expense decrease is reflected in both the expense and net investment income shown above.
See Notes which are an integral part of the Financial Statements
February 29, 2000
|
Principal |
|
|
|
|
Value |
|
|
|
|
|
U.S. TREASURY OBLIGATIONS--70.1% |
|
|
|
|
|
|
|
U.S. Treasury Bonds--4.1% |
|
|
|
|
$ |
900,000 |
|
12.000%, 5/15/2005 |
|
$ |
1,105,344 |
|
|
2,025,000 |
|
10.750%, 8/15/2005 |
|
|
2,390,938 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
3,496,282 |
|
|
||||||
|
|
|
|
U.S. Treasury Notes--66.0% |
|
|
|
|
|
1,000,000 |
|
6.000%, 8/15/2004 |
|
|
976,510 |
|
|
5,550,000 |
|
7.875%, 11/15/2004 |
|
|
5,816,455 |
|
|
7,375,000 |
|
7.500%, 2/15/2005 |
|
|
7,628,847 |
|
|
4,500,000 |
|
5.625%, 2/15/2006 |
|
|
4,270,455 |
|
|
8,700,000 |
|
6.875%, 5/15/2006 |
|
|
8,774,559 |
|
|
3,700,000 |
|
7.000%, 7/15/2006 |
|
|
3,756,166 |
|
|
5,500,000 |
|
6.500%, 10/15/2006 |
|
|
5,442,635 |
|
|
4,149,000 |
|
6.625%, 5/15/2007 |
|
|
4,134,852 |
|
|
11,784,000 |
|
5.625%, 5/15/2008 |
|
|
11,042,315 |
|
|
2,750,000 |
|
4.750%, 11/15/2008 |
|
|
2,416,343 |
|
|
2,800,000 |
|
5.500%, 5/15/2009 |
|
|
2,593,304 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
56,852,441 |
|
|
||||||
|
|
|
|
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $62,085,041) |
|
|
60,348,723 |
|
|
||||||
|
|
Principal |
|
|
|
|
Value |
|
|
|
|
U.S. GOVERNMENT AGENCY OBLIGATIONS--23.8% |
|
|
|
|
|
|
|
Federal Home Loan Bank--23.8% |
|
|
|
|
$ |
1,600,000 |
|
5.905%, 3/27/2008 |
|
$ |
1,459,920 |
|
|
2,500,000 |
|
5.925%, 4/9/2008 |
|
|
2,283,400 |
|
|
3,100,000 |
|
6.185%, 5/6/2008 |
|
|
2,878,319 |
|
|
4,400,000 |
|
5.800%, 9/2/2008 |
|
|
3,993,220 |
|
|
5,500,000 |
|
6.730%, 6/22/2009 |
|
|
5,292,485 |
|
|
4,000,000 |
|
6.500%, 8/14/2009 |
|
|
3,785,760 |
|
|
900,000 |
|
6.500%, 11/13/2009 |
|
|
850,824 |
|
|
||||||
|
|
|
|
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (IDENTIFIED COST $22,005,948) |
|
|
20,543,928 |
|
|
||||||
|
|
|
|
REPURCHASE AGREEMENT--3.1%1 |
|
|
|
|
|
2,655,000 |
|
Societe Generale, New York, 5.750%, dated 2/29/2000, due 3/1/2000 (at amortized cost) |
|
|
2,655,000 |
|
|
||||||
|
|
|
|
TOTAL INVESTMENTS (IDENTIFIED COST $86,745,989)2 |
|
$ |
83,547,651 |
|
|
||||||
1 The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. The investment in the repurchase agreement is through participation in a joint account with other Federated funds.
2 The cost of investments for federal tax purposes amounts to $86,753,157. The net unrealized depreciation of investments on a federal tax basis amounts to $3,205,506 which is comprised of $67,401 appreciation and $3,272,907 depreciation at February 29, 2000.
Note: The categories of investments are shown as a percentage of net assets ($86,132,187) at February 29, 2000.
See Notes which are an integral part of the Financial Statements
February 29, 2000
|
Assets: |
|
|
|
|
|
|
|
|
Total investments in securities, at value (identified cost of $86,745,989 and tax cost of $86,753,157) |
|
|
|
|
$ |
83,547,651 |
|
|
Cash |
|
|
|
|
|
24,224 |
|
|
Income receivable |
|
|
|
|
|
1,294,693 |
|
|
Receivable for shares sold |
|
|
|
|
|
1,713,156 |
|
|
Deferred organizational costs |
|
|
|
|
|
10,883 |
|
|
|
|||||||
|
TOTAL ASSETS |
|
|
|
|
$ |
86,590,607 |
|
|
|
|||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
Payable for shares redeemed |
|
$ |
199,170 |
|
|
|
|
|
Income distribution payable |
|
|
240,854 |
|
|
|
|
|
Accrued expenses |
|
|
18,396 |
|
|
|
|
|
|
|||||||
|
TOTAL LIABILITIES |
|
|
|
|
|
458,420 |
|
|
|
|||||||
|
Net assets for 8,993,737 shares outstanding |
|
|
|
|
$ |
86,132,187 |
|
|
|
|||||||
|
Net Assets Consist of: |
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
|
|
$ |
93,053,608 |
|
|
Net unrealized depreciation of investments |
|
|
|
|
|
(3,198,338 |
) |
|
Accumulated net realized loss on investments |
|
|
|
|
|
(3,653,992 |
) |
|
Distributions in excess of net investment income |
|
|
|
|
|
(69,091 |
) |
|
|
|||||||
|
TOTAL NET ASSETS |
|
|
|
|
$ |
86,132,187 |
|
|
|
|||||||
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
|
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
|
$53,675,002 ÷ 5,604,549 shares outstanding |
|
|
|
|
|
$9.58 |
|
|
|
|||||||
|
Institutional Service Shares: |
|
|
|
|
|
|
|
|
$32,457,185 ÷ 3,389,188 shares outstanding |
|
|
|
|
|
$9.58 |
|
|
|
|||||||
See Notes which are an integral part of the Financial Statements
Year Ended February 29, 2000
|
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
$ |
5,956,927 |
|
|
|
||||||||||||
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment adviser fee |
|
|
|
|
|
$ |
515,770 |
|
|
|
|
|
|
Administrative personnel and services fee |
|
|
|
|
|
|
155,000 |
|
|
|
|
|
|
Custodian fees |
|
|
|
|
|
|
6,356 |
|
|
|
|
|
|
Transfer and dividend disbursing agent fees and expenses |
|
|
|
|
|
|
60,935 |
|
|
|
|
|
|
Directors'/Trustees' fees |
|
|
|
|
|
|
12,746 |
|
|
|
|
|
|
Auditing fees |
|
|
|
|
|
|
14,090 |
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
7,093 |
|
|
|
|
|
|
Portfolio accounting fees |
|
|
|
|
|
|
58,063 |
|
|
|
|
|
|
Distribution services fee--Institutional Service Shares |
|
|
|
|
|
|
72,718 |
|
|
|
|
|
|
Shareholder services fee--Institutional Shares |
|
|
|
|
|
|
185,167 |
|
|
|
|
|
|
Shareholder services fee--Institutional Service Shares |
|
|
|
|
|
|
72,718 |
|
|
|
|
|
|
Share registration costs |
|
|
|
|
|
|
30,937 |
|
|
|
|
|
|
Printing and postage |
|
|
|
|
|
|
29,190 |
|
|
|
|
|
|
Insurance premiums |
|
|
|
|
|
|
1,415 |
|
|
|
|
|
|
Miscellaneous |
|
|
|
|
|
|
7,666 |
|
|
|
|
|
|
|
||||||||||||
|
TOTAL EXPENSES |
|
|
|
|
|
|
1,229,864 |
|
|
|
|
|
|
|
||||||||||||
|
Waivers and reimbursements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Waiver of investment advisory fee |
|
$ |
(515,770 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Shares |
|
|
(155,541 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Service Shares |
|
|
(46,539 |
) |
|
|
|
|
|
|
|
|
|
Reimbursement of other operating expenses |
|
|
(110,736 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
TOTAL WAIVERS AND REIMBURSEMENTS |
|
|
|
|
|
|
(828,586 |
) |
|
|
|
|
|
|
||||||||||||
|
Net expenses |
|
|
|
|
|
|
|
|
|
|
401,278 |
|
|
|
||||||||||||
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
5,555,649 |
|
|
|
||||||||||||
|
Realized and Unrealized Gain (Loss) on Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments |
|
|
|
|
|
|
|
|
|
|
(3,635,402 |
) |
|
Net change in unrealized depreciation of investments |
|
|
|
|
|
|
|
|
|
|
(2,916,695 |
) |
|
|
||||||||||||
|
Net realized and unrealized loss on investments |
|
|
|
|
|
|
|
|
|
|
(6,552,097 |
) |
|
|
||||||||||||
|
Change in net assets resulting from operations |
|
|
|
|
|
|
|
|
|
$ |
(996,448 |
) |
|
|
||||||||||||
See Notes which are an integral part of the Financial Statements
|
|
|
Year Ended |
|
|
Year Ended |
|
||
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
5,555,649 |
|
|
$ |
4,015,633 |
|
|
Net realized gain (loss) on investments ($3,635,402 and $975,874, respectively, as computed for federal tax purposes) |
|
|
(3,635,402 |
) |
|
|
975,874 |
|
|
Net change in unrealized depreciation |
|
|
(2,916,695 |
) |
|
|
(1,346,997 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS |
|
|
(996,448 |
) |
|
|
3,644,510 |
|
|
|
||||||||
|
Distributions to Shareholders: |
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(4,077,005 |
) |
|
|
(3,382,017 |
) |
|
Institutional Service Shares |
|
|
(1,529,167 |
) |
|
|
(636,924 |
) |
|
Distributions from net realized gains |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(111,837 |
) |
|
|
(733,012 |
) |
|
Institutional Service Shares |
|
|
(38,364 |
) |
|
|
(211,273 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS |
|
|
(5,756,373 |
) |
|
|
(4,963,226 |
) |
|
|
||||||||
|
Share Transactions: |
|
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
|
69,847,444 |
|
|
|
143,996,625 |
|
|
Net asset value of shares issued to shareholders in payment of distributions declared |
|
|
3,162,012 |
|
|
|
2,661,315 |
|
|
Cost of shares redeemed |
|
|
(92,831,298 |
) |
|
|
(74,522,164 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS |
|
|
(19,821,842 |
) |
|
|
72,135,776 |
|
|
|
||||||||
|
Change in net assets |
|
|
(26,574,663 |
) |
|
|
70,817,060 |
|
|
|
||||||||
|
Net Assets: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
112,706,850 |
|
|
|
41,889,790 |
|
|
|
||||||||
|
End of period |
|
$ |
86,132,187 |
|
|
$ |
112,706,850 |
|
|
|
||||||||
See Notes which are an integral part of the Financial Statements
February 29, 2000
Federated U.S. Government Securities Fund: 5-10 Years (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Trust offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Trust is to provide current income.
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.
U.S. government securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value.
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.
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. The Trust, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
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. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Trust offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Trust based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights, differences in per share dividend rates are generally due to differences in separate class expenses.
Distributions are determined in accordance with income tax regulations which may differ from the generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes.
The following reclassifications have been made to the financial statements:
|
Increase (Decrease) |
||||
|
Paid-in Capital |
|
Accumulated |
|
Undistributed |
|
$(538) |
|
$15,798 |
|
$(15,260) |
|
|
||||
Net investment income, net realized gains (losses) and net assets were not affected by this reclassification.
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 provision for federal tax is necessary.
At February 29, 2000, the Fund, for federal tax purposes, had a capital loss carryforward of $1,620,803 which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire in February 2008.
Additionally, net capital losses of $2,026,021 attributable to security transactions incurred after October 31, 1999, are treated as arising on March 1, 2000, the first day of the fund's next taxable year.
The Trust may engage in when-issued or delayed delivery transactions. The Trust records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
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.
Investment transactions are accounted for on a trade date basis.
The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares.
Transactions in capital stock were as follows:
|
|
|
Year Ended |
|
Year Ended |
||||||||||
|
Institutional Shares: |
|
Shares |
|
|
|
Amount |
|
|
Shares |
|
|
|
Amount |
|
|
Shares sold |
|
4,584,790 |
|
|
$ |
45,320,241 |
|
|
10,372,039 |
|
|
$ |
108,637,843 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
263,080 |
|
|
|
2,602,930 |
|
|
198,272 |
|
|
|
2,089,406 |
|
|
Shares redeemed |
|
(7,598,478 |
) |
|
|
(74,918,000 |
) |
|
(6,101,477 |
) |
|
|
(64,110,294 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
|
(2,750,608 |
) |
|
$ |
(26,994,829 |
) |
|
4,468,834 |
|
|
$ |
46,616,955 |
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
Year Ended |
|
Year Ended |
||||||||||
|
Institutional Service Shares: |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares sold |
|
2,491,880 |
|
|
$ |
24,527,203 |
|
|
3,365,052 |
|
|
$ |
35,358,782 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
56,459 |
|
|
|
559,082 |
|
|
53,863 |
|
|
|
571,909 |
|
|
Shares redeemed |
|
(1,813,609 |
) |
|
|
(17,913,298 |
) |
|
(977,573 |
) |
|
|
(10,411,870 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS |
|
734,730 |
|
|
$ |
7,172,987 |
|
|
2,441,342 |
|
|
$ |
25,518,821 |
|
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS |
|
(2,015,878 |
) |
|
$ |
(19,821,842 |
) |
|
6,910,176 |
|
|
$ |
72,135,776 |
|
|
|
||||||||||||||
Federated Investment Management Company, the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Trust's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and reimburse certain operating expenses of the Trust. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Trust with administrative personnel and services. The fee paid to FServ is based on a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Trust to finance activities intended to result in the sale of the Trust's Institutional Service Shares. The Plan provides that the Trust may incur distribution expenses up to 0.25% of the average daily net assets of the Institutional Service Shares, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder Services Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily net assets of the Trust shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or terminate this voluntary waiver at any time at its sole discretion.
FServ, through its subsidiary 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.
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.
Organizational expenses of $42,365 were borne initially by the Adviser. The Fund reimbursed the Adviser for these expenses. These expenses have been deferred and are being amortized over the five-year period following the Fund's effective date. For the year ended February 29, 2000, the Fund amortized $6,656 of organizational expenses.
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Purchases and sales of investments, excluding short-term securities (and in-kind contribution), for the year ended February 29, 2000, were as follows:
|
Purchases |
|
$ |
89,524,074 |
|
|
|||
|
Sales |
|
$ |
113,114,109 |
|
|
|||
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated U.S. Government Securities Fund: 5-10 Years (the "Fund"), as of February 29, 2000, and the related statement of operations for the year then ended, statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended and for the period October 15, 1995 to February 29, 1996. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of February 29, 2000 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Federated U.S. Government Securities Fund: 5-10 Years at February 29, 2000, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended and for the period October 15, 1995 to February 29, 1996, in conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
April 18, 2000
A Statement of Additional Information (SAI) dated April 30, 2000, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management Discussion and Analysis discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and make inquiries, call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or visiting the Public Reference Room in Washington, DC. You may also access fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
Federated
World-Class Investment Manager
Federated Total
Return Government Bond Fund
Federated Investors Funds
5800 Corporate
Drive
Pittsburgh, PA
15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated
Securities Corp., Distributor
Investment Company Act File No. 811-07309
<R>
Cusip 31429A105
</R>
<R>
G01209-01-IS (11/00)
</R>
Federated is a registered mark of Federated Investors, Inc. 2000 ©Federated Investors, Inc.
Federated Investors
World-Class Investment Manager
<R>
</R>
<R>
(Formerly, Federated U.S. Government Securities Fund: 5-10 Years)
</R>
<R>
</R>
<R>
April 30, 2000 (Revised on November 20, 2000)
</R>
<R>
A mutual fund seeking total return consistent with current income by investing in a portfolio of intermediate-term U.S. government and government agency securities, including mortgage-backed securities.
</R>
As with all mutual funds, the Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense.
NOT FDIC INSURED * MAY LOSE VALUE * NO BANK GUARANTEE
Risk/Return Summary 1
<R>
What are the Fund's Fees and Expenses? 3
</R>
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the Fund Invests? 6
<R>
What are the Specific Risks of Investing in the Fund? 9
</R>
<R>
What Do Shares Cost? 10
</R>
<R>
How is the Fund Sold? 11
</R>
<R>
How to Purchase Shares 12
</R>
<R>
How to Redeem Shares 13
</R>
<R>
Account and Share Information 16
</R>
<R>
Who Manages the Fund? 17
</R>
<R>
Financial Information 18
</R>
<R>
Report of Ernst & Young LLP, Independent Auditors 29
</R>
The Fund's investment objective is to pursue total return consistent with current income. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the strategies and policies described in this prospectus.
The Fund's total return will consist of two components: (1) changes in the market value of its portfolio securities (both realized and unrealized appreciation); and (2) income received from its portfolio securities. The Fund expects that income will comprise the largest component of its total return.
<R>
The Fund invests in a diversified, intermediate-term portfolio of securities that are issued or guaranteed by the U.S. government and its agencies or instrumentalities, including mortgage-backed securities that are issued by U.S. government agencies or instrumentalities. The Fund maintains a dollar-weighted average portfolio duration relative to that of the Lehman Brothers Government Bond Index (LBGB). Duration measures the price sensitivity of a fixed income security to charges in interest rates. The LBGB is composed of U.S. government and government agency bonds.
</R>
<R>
All mutual funds take investment risks. Therefore, it is possible to lose money by investing in the Fund. The primary factors that may reduce the Fund's returns are as follows:
</R>
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.
The bar chart shows the variability of the Fund's Institutional Service Shares on a calendar year-end basis.
The Fund's Institutional Service Shares are not sold subject to a sales charge (load). The total returns displayed above are based upon net asset value.
The Fund's Institutional Service Shares total return as of the most recent calendar quarter of March 31, 2000 was 2.25%.
Within the period shown in the Chart, the Fund's Institutional Service Shares highest quarterly return was 7.37% (quarter ended September 30, 1998). Its lowest quarterly return was (2.93%) (quarter ended March 31, 1996).
<R>
The following table represents the Fund's Institutional Service Shares Average Annual Total Returns for the calendar periods ended December 31, 1999. The table shows the Fund's total returns averaged over a period of years relative to the Merrill Lynch 5-10 Year Treasury Index (ML5-10T), a broad-based market index. Effective November 20, 2000, the Fund revised its investment strategy to permit the Fund to invest in a broader range of government securities (particularly mortgage-backed securities) than was previously permitted. Accordingly, the Fund's Adviser has elected to add the LBGB, an index composed of U.S. government agency bonds, as an additional benchmark which is representative of the securities in which the Fund intends to invest. Total returns for the indexes shown do not reflect sales charges, expenses or other fees that the SEC requires to be reflected in the Fund's performance. Indexes are unmanaged, and it is not possible to invest directly in an index.
</R>
|
Calendar Period |
|
Fund |
|
ML5-10T |
|
<R>LBGB</R> |
|
|
1 Year |
|
(4.16%) |
|
(3.87%) |
|
<R>(2.23%</R> |
<R>)</R> |
|
Start of Performance1 |
|
4.88% |
|
5.35% |
|
<R>5.75%</R> |
|
1 The Fund's Institutional Service Shares start of performance date was October 19,1995.
Past performance does not necessarily predict future performance. This information provides you with historical performance information so that you can analyze whether the Fund's investment risks are balanced by its potential returns.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund's Institutional Service Shares.
|
Shareholder Fees |
|
|
|
Fees Paid Directly From Your Investment |
|
|
|
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
|
None |
|
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase price or redemption proceeds, as applicable) |
|
None |
|
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) (as a percentage of offering price) |
|
None |
|
Redemption Fee (as a percentage of amount redeemed, if applicable) |
|
None |
|
Exchange Fee |
|
None |
|
|
|
|
|
Annual Fund Operating Expenses (Before Reimbursement and Waivers)1 |
|
|
|
Expenses That are Deducted From Fund Assets (as a percentage of average net assets) |
|
|
|
Management Fee2 |
|
0.50% |
|
Distribution (12b-1) Fee |
|
0.25% |
|
Shareholder Services Fee3 |
|
0.25% |
|
Other Expenses4 |
|
0.37% |
|
Total Annual Fund Operating Expenses |
|
1.37% |
|
|
||
|
1 Although not contractually obligated to do so, the adviser and shareholder services provider waived and reimbursed certain amounts. These are shown below along with the net expenses the Fund actually paid for the fiscal year ending February 29, 2000. |
||
|
Total Reimbursement and Waivers of Fund Expenses |
|
0.77% |
|
Total Actual Annual Fund Operating Expenses (after reimbursement and waivers) |
|
0.60% |
|
2 The adviser voluntarily waived the management fee. The adviser can terminate this voluntary waiver at any time. The management fee paid by the Fund (after the voluntary waiver) was 0.00% for the fiscal year ended February 29, 2000. |
||
|
3 A portion of the shareholder services fee was voluntarily waived. This voluntary waiver can be terminated at any time. The shareholder services fee paid by the Fund's Institutional Service Shares (after the voluntary waiver) was 0.09% for the fiscal year ended February 29, 2000. |
||
|
4 The adviser voluntarily reimbursed certain operating expenses of the Fund. The adviser can terminate this voluntary reimbursement at any time. Total other expenses paid by the Fund (after the voluntary reimbursement) was 0.26% for the fiscal year ended February 29, 2000. |
||
This Example is intended to help you compare the cost of investing in the Fund's Institutional Service Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Institutional Service Shares for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund's Institutional Service Shares operating expenses are before reimbursements and waivers as shown in the Table and remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
|
1 Year |
$ |
138 |
|
|
||
|
3 Years |
$ |
431 |
|
|
||
|
5 Years |
$ |
745 |
|
|
||
|
10 Years |
$ |
1,635 |
|
|
||
<R>
The Fund invests in a portfolio of intermediate term securities that are issued or guaranteed by the U.S. government and its agencies or instrumentalities, including mortgage-backed securities that are issued by U.S. government agencies or instrumentalities. The Fund's adviser actively manages its portfolio, seeking to limit the interest rate risk taken by the Fund while selecting investments that should offer enhanced returns based upon the adviser's interest rate outlook.
</R>
<R>
The adviser manages the Fund's interest rate risk by limiting the dollar-weighted average duration of its portfolio securities. "Duration" measures the sensitivity of a security's price to changes in interest rates. The greater a portfolio's average duration, the greater the change in the portfolio's value in response to a change in market interest rates. As a matter of investment policy, under normal market conditions, the adviser limits the average duration of the portfolio relative to that of the LBGB. This policy should prevent the volatility of the Fund's share price from significantly exceeding the average volatility of intermediate-term government securities.
</R>
<R>
The Adviser may seek to increase the Fund's total return by lengthening or shortening duration from time to time based on its interest rate outlook. If the Adviser expects interest rates to decline, it will generally lengthen the Fund's duration. If the Adviser expects interest rates to increase, it will generally shorten the Fund's duration. The Adviser formulates its interest rate outlook and otherwise attempts to anticipate changes in economic and market conditions by analyzing a variety of factors, such as:
</R>
<R>
There is no assurance that the Adviser's efforts to forecast market interest rates and assess the impact of market interest rates in particular will be successful.
</R>
<R>
In addition to managing the Fund's portfolio duration, the Adviser seeks to enhance the Fund's total return through its allocation of the Fund's holdings between U.S. government mortgage-backed securities and other types of U.S. government securities. Mortgage-backed securities generally offer higher yields versus other government securities of comparable duration in order to compensate for prepayment risk. Prepayment risk is the unscheduled partial or complete payment of the principal outstanding on the underlying mortgage loans by the homeowners. The Adviser attempts to limit prepayment risk by selecting those mortgage-backed securities with characteristics which make prepayments less likely.
</R>
<R>
The Adviser increases the portfolio's mortgage-backed securities component when, in the opinion of the Adviser, mortgage-backed securities have an attractive current and expected yield "spread" versus Treasury securities. (The spread is the difference between the yield of a security versus the yield of a U.S. Treasury security with comparable average life). The Adviser may also attempt to take advantage of current and potential yield differentials existing from time to time between various government mortgage-backed securities in order to increase the Fund's return.
</R>
<R>
The Adviser may use collateralized mortgage obligations ("CMOs") with relatively predictable cash flows (such as sequential pay, planned amortization class and targeted amortization class) to reduce prepayment risk. CMOs in which the Fund invests are issued by agencies or instrumentalities of the U.S. government.
</R>
The Fund may temporarily depart from its principal investment strategies by investing its assets in cash and shorter-term debt securities and similar obligations. It may do this to minimize potential losses and maintain liquidity to meet shareholder redemptions during adverse market conditions. This may cause the Fund to give up greater investment returns to maintain the safety of principal, that is, the original amount invested by shareholders.
<R>
</R>
Treasury securities are direct obligations of the federal government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
<R>
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as Treasury securities.
</R>
<R>
The Fund treats mortgage-backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage-backed securities.
</R>
<R>
</R>
<R>
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities.
</R>
<R>
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
</R>
<R>
The following describes the principal types of fixed income securities in which the Fund may invest:
</R>
<R>
</R>
<R>
Mortgage-backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates.
</R>
<R>
Mortgage-backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage-backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments on to the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
</R>
<R>
The Fund may invest in mortgage-backed securities primarily by investing in another investment company (which is not available for general investment by the public) that owns those securities and that is advised by an affiliate of the Adviser. This other investment company is managed independently of the Fund and may incur additional administrative expenses. Therefore, any such investment by the Fund may be subject to duplicative expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the potential additional expenses. The Fund may also invest in such securities directly.
</R>
<R>
</R>
<R>
CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and prepayments from an underlying pass-through certificate among holders of different classes of mortgage-backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of repayment risk of CMOs depends upon the structure of the CMOs. However, the actual returns of any type of mortgage-backed security depends upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
</R>
<R>
</R>
<R>
In a sequential pay CMO, one class of CMOs receives all principal payments and prepayments. The next class of CMOs receives all principal payments after the first class is paid off. This process repeats for each sequential class of CMO. As a result, each class of sequential pay CMOs reduces the prepayment risks of subsequent classes.
</R>
<R>
</R>
<R>
More sophisticated CMOs include planned amortization classes (PACs) and targeted amortization classes (TACs). PACs and TACs are issued with companion classes. PACs and TACs receive principal payments and repayments at a specified rate. The companion classes receive principal payments and prepayments in excess of the specified rate. In addition, PACs will receive the companion classes' share of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs and TACs to control prepayment risks by increasing the risks to their companion classes.
</R>
<R>
</R>
<R>
</R>
<R>
Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price exceeds the sale price, reflecting the Fund's return on the transaction. This return is unrelated to the interest rate on the underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the Adviser.
</R>
<R>
</R>
<R>
Delayed delivery transactions, including when-issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transaction when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default.
</R>
<R>
</R>
<R>
As with other delayed delivery transactions, a seller agrees to issue a TBA security at a future date. However, the seller does not specify the particular securities to be delivered. Instead, the Fund agrees to accept any security that meets specified terms. For example, in a TBA mortgage-backed transaction, the Fund and the seller would agree upon the issuer, interest rate and terms of the underlying mortgages. The seller would not identify the specific underlying mortgages until it issues the security. TBA mortgage-backed securities increase interest rate risks because the underlying mortgages may be less favorable than anticipated by the Fund.
</R>
<R>
</R>
<R>
Dollar rolls are transactions where the Fund sells mortgage-backed securities with a commitment to buy similar, but not identical, mortgage-backed securities on a future date at a lower price. Normally, one or both securities involved are TBA mortgage-backed securities. Dollar rolls are subject to interest rate risks and credit risks.
</R>
<R>
</R>
<R>
In order to secure its obligations in connection with derivatives contracts or special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.
</R>
<R>
</R>
<R>
Unlike traditional fixed income securities, which may pay a fixed rate of interest until maturity, when the entire principal amount is due, payments on mortgage-backed securities include both interest and a partial payment of principal. This partial payment of principal may be composed of a scheduled principal payment as well as unscheduled payments from the voluntary prepayment, refinancing, or foreclosure of the underlying loans. These unscheduled payments of principal can adversely affect the price and yield of mortgage-backed securities.
</R>
<R>
For example, during periods of declining interest rates, prepayments can be expected to accelerate, and the Fund would be required to reinvest the proceeds at the lower interest rates then available. In addition, like other interest-bearing securities, the values of mortgage-backed securities generally fall when interest rates rise. Since rising interest rates generally result in decreased prepayments of mortgage-backed securities, this could cause mortgage securities to have greater average lives than expected and their value may decline more than other fixed income securities. Conversely, when interest rates fall, their potential for capital appreciation is limited due to the existence of the prepayment feature.
</R>
<R>
Generally, mortgage-backed securities compensate for greater prepayment risk by paying a higher yield. The additional interest paid for risk is measured by the difference between the yield of a mortgage-backed security and the yield of a U.S. Treasury security with a comparable maturity (the spread). An increase in the spread will cause the price of the security to decline. Spreads generally increase in response to adverse economic or market conditions.
</R>
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is open. When the Fund receives your transaction request in proper form (as described in the prospectus) it is processed at the next calculated net asset value (NAV). The Fund does not charge a front-end sales charge. NAV is determined at the end of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open. The Fund generally values fixed income securities according to the mean between bid and asked prices as furnished by an independent pricing service, except that fixed income securities with remaining maturities of less than 60 days at the time of purchase may be valued at amortized cost.
The required minimum initial investment for Fund Shares is $25,000. There is no required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is reached within 90 days. An institutional investor's minimum investment is calculated by combining all accounts it maintains with the Fund. Accounts established through investment professionals may be subject to a smaller minimum investment amount. Keep in mind that investment professionals may charge you fees for their services in connection with your Share transactions.
The Fund offers two share classes: Institutional Service Shares and Institutional Shares, each representing interests in a single portfolio of securities. This prospectus relates only to Institutional Service Shares. Each share class has different expenses, which affect their performance. Contact your investment professional or call 1-800-341-7400 for more information concerning the other class.
The Fund's Distributor, Federated Securities Corp., markets the Shares described in this prospectus to retail and private banking customers of financial institutions or to individuals, directly or through investment professionals.
When the Distributor receives marketing fees, it may pay some or all of them to investment professionals. The Distributor and its affiliates may pay out of their assets other amounts (including items of material value) to investment professionals for marketing and servicing Shares. The Distributor is a subsidiary of Federated Investors, Inc. (Federated).
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to the Distributor and investment professionals for the sale, distribution and customer servicing of the Fund's Institutional Service Shares. Because these Shares pay marketing fees on an ongoing basis, your investment cost may be higher over time than other shares with different marketing fees.
You may purchase Shares through an investment professional or directly from the Fund. The Fund reserves the right to reject any request to purchase Shares.
Investment professionals should send payments according to the instructions in the sections "By Wire" or "By Check."
You will become the owner of Shares and your Shares will be priced at the next calculated NAV after the Fund receives your wire or your check. If your check does not clear, your purchase will be canceled and you could be liable for any losses or fees incurred by the Fund or Federated Shareholder Services Company, the Fund's transfer agent.
An institution may establish an account and place an order by calling the Fund and the Shares will be priced at the next calculated NAV after the Fund receives the order.
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are restricted.
Make your check payable to The Federated Funds, note your account number on the check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a private courier or overnight delivery service that requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will not accept third-party checks (checks originally payable to someone other than you or The Federated Funds). Orders by mail are considered received and begin earning dividends when payment by check is converted into federal funds (normally the business day after the check is received).
Once you have opened an account, you may purchase additional Shares through a depository institution that is an ACH member. This purchase option can be established by completing the appropriate sections of the New Account Form.
You should redeem Shares:
Submit your redemption request to your investment professional by the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The redemption amount you will receive is based upon the next calculated NAV after the Fund receives the order from your investment professional.
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have completed the appropriate authorization form for telephone transactions. If you call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time), you will receive a redemption amount based on that day's NAV.
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the next calculated NAV after the Fund receives your written request in proper form.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by private courier or overnight delivery service to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
Call your investment professional or the Fund if you need special instructions.
Signatures must be guaranteed if:
A signature guarantee is designed to protect your account from fraud. Obtain a signature guarantee from a bank or trust company, savings association, credit union or broker, dealer, or securities exchange member. A notary public cannot provide a signature guarantee.
Your redemption proceeds will be mailed by check to your address of record. The following payment options are available if you complete the appropriate section of the New Account Form or an Account Service Options Form. These payment options require a signature guarantee if they were not established when the account was opened:
Although the Fund intends to pay Share redemptions in cash, it reserves the right to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Redemption proceeds normally are wired or mailed within one business day after receiving a request in proper form. Payment may be delayed up to seven days:
You will not accrue interest or dividends on uncashed checks from the Fund if those checks are undeliverable and returned to the Fund.
The Fund will record your telephone instructions. If the Fund does not follow reasonable procedures, it may be liable for losses due to unauthorized or fraudulent telephone instructions.
The Fund no longer issues share certificates. If you are redeeming Shares represented by certificates previously issued by the Fund, you must return the certificates with your written redemption request. For your protection, send your certificates by registered or certified mail, but do not endorse them.
You will receive confirmation of purchases and redemptions. In addition, you will receive periodic statements reporting all account activity, including dividends and capital gains paid.
The Fund declares any dividends daily and pays them monthly to shareholders. If you purchase Shares by wire, you begin earning dividends on the day your wire is received. If you purchase Shares by check, you begin earning dividends on the business day after the Fund receives your check. In either case, you earn dividends through the day your redemption request is received.
In addition, the Fund pays any capital gains at least annually. Your dividends and capital gains distributions will be automatically reinvested in additional Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a capital gain distribution, you will pay the full price for the Shares and then receive a portion of the price back in the form of a taxable distribution, whether or not you reinvest the distribution in Shares. Therefore, you should consider the tax implications of purchasing Shares shortly before the Fund declares a capital gain. Contact your investment professional or the Fund for information concerning when dividends and capital gains will be paid.
Due to the high cost of maintaining accounts with low balances, accounts may be closed if redemptions cause the account balance to fall below the minimum initial investment amount. Before an account is closed, you will be notified and allowed 30 days to purchase additional Shares to meet the minimum.
The Fund sends an annual statement of your account activity to assist you in completing your federal, state and local tax returns. Fund distributions of dividends and capital gains are taxable to you whether paid in cash or reinvested in the Fund. Dividends are taxable as ordinary income; capital gains are taxable at different rates depending upon the length of time the Fund holds its assets.
Fund distributions are expected to be both dividends and capital gains. Redemptions are taxable sales. Please consult your tax adviser regarding your federal, state and local tax liability.
The Board of Trustees governs the Fund. The Board selects and oversees the Adviser, Federated Investment Management Company. The Adviser manages the Fund's assets, including buying and selling portfolio securities. The Adviser's address is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 176 mutual funds and separate accounts, which totaled approximately $125 billion in assets as of December 31, 1999. Federated was established in 1955 and is one of the largest mutual fund investment managers in the United States with approximately 1,900 employees. More than 4,000 investment professionals make Federated Funds available to their customers.
Susan M. Nason has been the Fund's Portfolio Manager since its inception. She is Vice President of the Fund. Ms. Nason joined Federated in 1987 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her M.S.I.A. concentrating in Finance from Carnegie Mellon University.
<R>
</R>
<R>
Kathleen M. Foody-Malus has been the Fund's Portfolio Manager since November 2000. She is Vice President of the Fund. Ms. Foody-Malus joined Federated in 1983 and has been a Senior Portfolio Manager since 1996 and a Vice President of the Fund's Adviser since 1993. She was a Portfolio Manager and a Vice President of the Fund's Adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the University of Pittsburgh.
</R>
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's average daily net assets. The Adviser may voluntarily waive a portion of its fee or reimburse the Fund for certain operating expenses.
The following Financial Highlights will help you understand the Fund's financial performance for its past five fiscal years, or since inception, if the life of the Fund is shorter. Some of the information is presented on a per share basis. Total returns represent the rate an investor would have earned (or lost) on an investment in the Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by Ernst & Young LLP, Independent Auditors whose report, along with the Fund's audited financial statements, is included in this prospectus.
(For a Share Outstanding Throughout Each Period)
Reference is made to the Report of Independent Auditors on page 29.
|
|
|
Year |
|
|
Year Ended February 28, |
|
Period |
|
|||||||
|
|
|
2/29/2000 |
|
|
1999 |
|
|
1998 |
|
|
1997 |
|
|
2/29/1996 |
1 |
|
Net Asset Value, Beginning of Period |
|
$10.24 |
|
|
$10.22 |
|
|
$ 9.77 |
|
|
$ 9.98 |
|
|
$10.00 |
|
|
Income From Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
0.51 |
|
|
0.52 |
|
|
0.55 |
|
|
0.56 |
|
|
0.20 |
|
|
Net realized and unrealized gain (loss) on investments |
|
(0.64 |
) |
|
0.12 |
|
|
0.48 |
|
|
(0.21 |
) |
|
(0.02 |
) |
|
|
|||||||||||||||
|
TOTAL FROM INVESTMENT OPERATIONS |
|
(0.13 |
) |
|
0.64 |
|
|
1.03 |
|
|
0.35 |
|
|
0.18 |
|
|
|
|||||||||||||||
|
Less Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
(0.51 |
) |
|
(0.52 |
) |
|
(0.56 |
) |
|
(0.56 |
) |
|
(0.20 |
) |
|
Total distributions from net realized gain on investments |
|
(0.02 |
) |
|
(0.10 |
) |
|
(0.02 |
) |
|
-- |
|
|
-- |
|
|
|
|||||||||||||||
|
TOTAL DISTRIBUTIONS |
|
(0.53 |
) |
|
(0.62 |
) |
|
(0.58 |
) |
|
(0.56 |
) |
|
(0.20 |
) |
|
|
|||||||||||||||
|
Net Asset Value, End of Period |
|
$ 9.58 |
|
|
$10.24 |
|
|
$10.22 |
|
|
$ 9.77 |
|
|
$ 9.98 |
|
|
|
|||||||||||||||
|
Total Return2 |
|
(1.26 |
%) |
|
6.26 |
% |
|
10.76 |
% |
|
3.62 |
% |
|
1.75 |
% |
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Expenses |
|
0.60 |
% |
|
0.60 |
% |
|
0.60 |
% |
|
0.47 |
% |
|
0.45 |
%3 |
|
|
|||||||||||||||
|
Net investment income |
|
5.21 |
% |
|
4.87 |
% |
|
5.56 |
% |
|
5.70 |
% |
|
5.25 |
%3 |
|
|
|||||||||||||||
|
Expense waivers/reimbursements4 |
|
0.77 |
% |
|
0.83 |
% |
|
1.64 |
% |
|
3.86 |
% |
|
12.17 |
%3 |
|
|
|||||||||||||||
|
Supplemental Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Net assets, end of period (000 omitted) |
|
$32,457 |
|
|
$27,173 |
|
|
$2,178 |
|
|
$1,782 |
|
|
$1,046 |
|
|
|
|||||||||||||||
|
Portfolio turnover |
|
90 |
% |
|
85 |
% |
|
49 |
% |
|
57 |
% |
|
29 |
% |
|
|
|||||||||||||||
1 Reflects operations for the period from October 19, 1995 (date of initial public investment) to February 29, 1996. For the period from September 5, 1995 (start of business) to October 18, 1995, the investment income was distributed to the Fund's administrator.
2 Based on net asset value, which does not reflect the sales charge or contingent deferred sales charge, if applicable.
3 Computed on an annualized basis.
4 This voluntary expense decrease is reflected in both the expense and net investment income shown above.
See Notes which are an integral part of the Financial Statements
February 29, 2000
|
Principal |
|
|
|
|
Value |
|
|
|
|
|
U.S. TREASURY OBLIGATIONS--70.1% |
|
|
|
|
|
|
|
U.S. Treasury Bonds--4.1% |
|
|
|
|
$ |
900,000 |
|
12.000%, 5/15/2005 |
|
$ |
1,105,344 |
|
|
2,025,000 |
|
10.750%, 8/15/2005 |
|
|
2,390,938 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
3,496,282 |
|
|
||||||
|
|
|
|
U.S. Treasury Notes--66.0% |
|
|
|
|
|
1,000,000 |
|
6.000%, 8/15/2004 |
|
|
976,510 |
|
|
5,550,000 |
|
7.875%, 11/15/2004 |
|
|
5,816,455 |
|
|
7,375,000 |
|
7.500%, 2/15/2005 |
|
|
7,628,847 |
|
|
4,500,000 |
|
5.625%, 2/15/2006 |
|
|
4,270,455 |
|
|
8,700,000 |
|
6.875%, 5/15/2006 |
|
|
8,774,559 |
|
|
3,700,000 |
|
7.000%, 7/15/2006 |
|
|
3,756,166 |
|
|
5,500,000 |
|
6.500%, 10/15/2006 |
|
|
5,442,635 |
|
|
4,149,000 |
|
6.625%, 5/15/2007 |
|
|
4,134,852 |
|
|
11,784,000 |
|
5.625%, 5/15/2008 |
|
|
11,042,315 |
|
|
2,750,000 |
|
4.750%, 11/15/2008 |
|
|
2,416,343 |
|
|
2,800,000 |
|
5.500%, 5/15/2009 |
|
|
2,593,304 |
|
|
||||||
|
|
|
|
TOTAL |
|
|
56,852,441 |
|
|
||||||
|
|
|
|
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $62,085,041) |
|
|
60,348,723 |
|
|
||||||
|
|
Principal |
|
|
|
|
Value |
|
|
|
|
U.S. GOVERNMENT AGENCY OBLIGATIONS--23.8% |
|
|
|
|
|
|
|
Federal Home Loan Bank--23.8% |
|
|
|
|
$ |
1,600,000 |
|
5.905%, 3/27/2008 |
|
$ |
1,459,920 |
|
|
2,500,000 |
|
5.925%, 4/9/2008 |
|
|
2,283,400 |
|
|
3,100,000 |
|
6.185%, 5/6/2008 |
|
|
2,878,319 |
|
|
4,400,000 |
|
5.800%, 9/2/2008 |
|
|
3,993,220 |
|
|
5,500,000 |
|
6.730%, 6/22/2009 |
|
|
5,292,485 |
|
|
4,000,000 |
|
6.500%, 8/14/2009 |
|
|
3,785,760 |
|
|
900,000 |
|
6.500%, 11/13/2009 |
|
|
850,824 |
|
|
||||||
|
|
|
|
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (IDENTIFIED COST $22,005,948) |
|
|
20,543,928 |
|
|
||||||
|
|
|
|
REPURCHASE AGREEMENT--3.1%1 |
|
|
|
|
|
2,655,000 |
|
Societe Generale, New York, 5.750%, dated 2/29/2000, due 3/1/2000 (at amortized cost) |
|
|
2,655,000 |
|
|
||||||
|
|
|
|
TOTAL INVESTMENTS (IDENTIFIED COST $86,745,989)2 |
|
$ |
83,547,651 |
|
|
||||||
1 The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. The investment in the repurchase agreement is through participation in a joint account with other Federated funds.
2 The cost of investments for federal tax purposes amounts to $86,753,157. The net unrealized depreciation of investments on a federal tax basis amounts to $3,205,506 which is comprised of $67,401 appreciation and $3,272,907 depreciation at February 29, 2000.
Note: The categories of investments are shown as a percentage of net assets ($86,132,187) at February 29, 2000.
See Notes which are an integral part of the Financial Statements
February 29, 2000
|
Assets: |
|
|
|
|
|
|
|
|
Total investments in securities, at value (identified cost of $86,745,989 and tax cost of $86,753,157) |
|
|
|
|
$ |
83,547,651 |
|
|
Cash |
|
|
|
|
|
24,224 |
|
|
Income receivable |
|
|
|
|
|
1,294,693 |
|
|
Receivable for shares sold |
|
|
|
|
|
1,713,156 |
|
|
Deferred organizational costs |
|
|
|
|
|
10,883 |
|
|
|
|||||||
|
TOTAL ASSETS |
|
|
|
|
$ |
86,590,607 |
|
|
|
|||||||
|
Liabilities: |
|
|
|
|
|
|
|
|
Payable for shares redeemed |
|
$ |
199,170 |
|
|
|
|
|
Income distribution payable |
|
|
240,854 |
|
|
|
|
|
Accrued expenses |
|
|
18,396 |
|
|
|
|
|
|
|||||||
|
TOTAL LIABILITIES |
|
|
|
|
|
458,420 |
|
|
|
|||||||
|
Net assets for 8,993,737 shares outstanding |
|
|
|
|
$ |
86,132,187 |
|
|
|
|||||||
|
Net Assets Consist of: |
|
|
|
|
|
|
|
|
Paid-in capital |
|
|
|
|
$ |
93,053,608 |
|
|
Net unrealized depreciation of investments |
|
|
|
|
|
(3,198,338 |
) |
|
Accumulated net realized loss on investments |
|
|
|
|
|
(3,653,992 |
) |
|
Distributions in excess of net investment income |
|
|
|
|
|
(69,091 |
) |
|
|
|||||||
|
TOTAL NET ASSETS |
|
|
|
|
$ |
86,132,187 |
|
|
|
|||||||
|
Net Asset Value, Offering Price and Redemption Proceeds Per Share |
|
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
|
$53,675,002 ÷ 5,604,549 shares outstanding |
|
|
|
|
|
$9.58 |
|
|
|
|||||||
|
Institutional Service Shares: |
|
|
|
|
|
|
|
|
$32,457,185 ÷ 3,389,188 shares outstanding |
|
|
|
|
|
$9.58 |
|
|
|
|||||||
See Notes which are an integral part of the Financial Statements
Year Ended February 29, 2000
|
Investment Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
|
|
$ |
5,956,927 |
|
|
|
||||||||||||
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment adviser fee |
|
|
|
|
|
$ |
515,770 |
|
|
|
|
|
|
Administrative personnel and services fee |
|
|
|
|
|
|
155,000 |
|
|
|
|
|
|
Custodian fees |
|
|
|
|
|
|
6,356 |
|
|
|
|
|
|
Transfer and dividend disbursing agent fees and expenses |
|
|
|
|
|
|
60,935 |
|
|
|
|
|
|
Directors'/Trustees' fees |
|
|
|
|
|
|
12,746 |
|
|
|
|
|
|
Auditing fees |
|
|
|
|
|
|
14,090 |
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
7,093 |
|
|
|
|
|
|
Portfolio accounting fees |
|
|
|
|
|
|
58,063 |
|
|
|
|
|
|
Distribution services fee--Institutional Service Shares |
|
|
|
|
|
|
72,718 |
|
|
|
|
|
|
Shareholder services fee--Institutional Shares |
|
|
|
|
|
|
185,167 |
|
|
|
|
|
|
Shareholder services fee--Institutional Service Shares |
|
|
|
|
|
|
72,718 |
|
|
|
|
|
|
Share registration costs |
|
|
|
|
|
|
30,937 |
|
|
|
|
|
|
Printing and postage |
|
|
|
|
|
|
29,190 |
|
|
|
|
|
|
Insurance premiums |
|
|
|
|
|
|
1,415 |
|
|
|
|
|
|
Miscellaneous |
|
|
|
|
|
|
7,666 |
|
|
|
|
|
|
|
||||||||||||
|
TOTAL EXPENSES |
|
|
|
|
|
|
1,229,864 |
|
|
|
|
|
|
|
||||||||||||
|
Waivers and reimbursements: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Waiver of investment advisory fee |
|
$ |
(515,770 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Shares |
|
|
(155,541 |
) |
|
|
|
|
|
|
|
|
|
Waiver of shareholder services fee--Institutional Service Shares |
|
|
(46,539 |
) |
|
|
|
|
|
|
|
|
|
Reimbursement of other operating expenses |
|
|
(110,736 |
) |
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
TOTAL WAIVERS AND REIMBURSEMENTS |
|
|
|
|
|
|
(828,586 |
) |
|
|
|
|
|
|
||||||||||||
|
Net expenses |
|
|
|
|
|
|
|
|
|
|
401,278 |
|
|
|
||||||||||||
|
Net investment income |
|
|
|
|
|
|
|
|
|
|
5,555,649 |
|
|
|
||||||||||||
|
Realized and Unrealized Gain (Loss) on Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss on investments |
|
|
|
|
|
|
|
|
|
|
(3,635,402 |
) |
|
Net change in unrealized depreciation of investments |
|
|
|
|
|
|
|
|
|
|
(2,916,695 |
) |
|
|
||||||||||||
|
Net realized and unrealized loss on investments |
|
|
|
|
|
|
|
|
|
|
(6,552,097 |
) |
|
|
||||||||||||
|
Change in net assets resulting from operations |
|
|
|
|
|
|
|
|
|
$ |
(996,448 |
) |
|
|
||||||||||||
See Notes which are an integral part of the Financial Statements
|
|
|
Year Ended |
|
|
Year Ended |
|
||
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
|
Net investment income |
|
$ |
5,555,649 |
|
|
$ |
4,015,633 |
|
|
Net realized gain (loss) on investments ($3,635,402 and $975,874, respectively, as computed for federal tax purposes) |
|
|
(3,635,402 |
) |
|
|
975,874 |
|
|
Net change in unrealized depreciation |
|
|
(2,916,695 |
) |
|
|
(1,346,997 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS |
|
|
(996,448 |
) |
|
|
3,644,510 |
|
|
|
||||||||
|
Distributions to Shareholders: |
|
|
|
|
|
|
|
|
|
Distributions from net investment income |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(4,077,005 |
) |
|
|
(3,382,017 |
) |
|
Institutional Service Shares |
|
|
(1,529,167 |
) |
|
|
(636,924 |
) |
|
Distributions from net realized gains |
|
|
|
|
|
|
|
|
|
Institutional Shares |
|
|
(111,837 |
) |
|
|
(733,012 |
) |
|
Institutional Service Shares |
|
|
(38,364 |
) |
|
|
(211,273 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM DISTRIBUTIONS TO SHAREHOLDERS |
|
|
(5,756,373 |
) |
|
|
(4,963,226 |
) |
|
|
||||||||
|
Share Transactions: |
|
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
|
69,847,444 |
|
|
|
143,996,625 |
|
|
Net asset value of shares issued to shareholders in payment of distributions declared |
|
|
3,162,012 |
|
|
|
2,661,315 |
|
|
Cost of shares redeemed |
|
|
(92,831,298 |
) |
|
|
(74,522,164 |
) |
|
|
||||||||
|
CHANGE IN NET ASSETS RESULTING FROM SHARE TRANSACTIONS |
|
|
(19,821,842 |
) |
|
|
72,135,776 |
|
|
|
||||||||
|
Change in net assets |
|
|
(26,574,663 |
) |
|
|
70,817,060 |
|
|
|
||||||||
|
Net Assets: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
|
112,706,850 |
|
|
|
41,889,790 |
|
|
|
||||||||
|
End of period |
|
$ |
86,132,187 |
|
|
$ |
112,706,850 |
|
|
|
||||||||
See Notes which are an integral part of the Financial Statements
February 29, 2000
Federated U.S. Government Securities Fund: 5-10 Years (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as a diversified, open-end management investment company. The Trust offers two classes of shares: Institutional Shares and Institutional Service Shares. The investment objective of the Trust is to provide current income.
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.
U.S. government securities are generally valued at the mean of the latest bid and asked price as furnished by an independent pricing service. Short-term securities are valued at the prices provided by an independent pricing service. However, short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value.
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.
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. The Trust, along with other affiliated investment companies, may utilize a joint trading account for the purpose of entering into one or more repurchase agreements.
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. Non-cash dividends included in dividend income, if any, are recorded at fair value. The Trust offers multiple classes of shares, which differ in their respective distribution and service fees. All shareholders bear the common expenses of the Trust based on average daily net assets of each class, without distinction between share classes. Dividends are declared separately for each class. No class has preferential dividend rights, differences in per share dividend rates are generally due to differences in separate class expenses.
Distributions are determined in accordance with income tax regulations which may differ from the generally accepted accounting principles. These distributions do not represent a return of capital for federal income tax purposes.
The following reclassifications have been made to the financial statements:
|
Increase (Decrease) |
||||
|
Paid-in Capital |
|
Accumulated |
|
Undistributed |
|
$(538) |
|
$15,798 |
|
$(15,260) |
|
|
||||
Net investment income, net realized gains (losses) and net assets were not affected by this reclassification.
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 provision for federal tax is necessary.
At February 29, 2000, the Fund, for federal tax purposes, had a capital loss carryforward of $1,620,803 which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire in February 2008.
Additionally, net capital losses of $2,026,021 attributable to security transactions incurred after October 31, 1999, are treated as arising on March 1, 2000, the first day of the fund's next taxable year.
The Trust may engage in when-issued or delayed delivery transactions. The Trust records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. Losses may occur on these transactions due to changes in market conditions or the failure of counterparties to perform under the contract.
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.
Investment transactions are accounted for on a trade date basis.
The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value) for each class of shares.
Transactions in capital stock were as follows:
|
|
|
Year Ended |
|
Year Ended |
||||||||||
|
Institutional Shares: |
|
Shares |
|
|
|
Amount |
|
|
Shares |
|
|
|
Amount |
|
|
Shares sold |
|
4,584,790 |
|
|
$ |
45,320,241 |
|
|
10,372,039 |
|
|
$ |
108,637,843 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
263,080 |
|
|
|
2,602,930 |
|
|
198,272 |
|
|
|
2,089,406 |
|
|
Shares redeemed |
|
(7,598,478 |
) |
|
|
(74,918,000 |
) |
|
(6,101,477 |
) |
|
|
(64,110,294 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SHARE TRANSACTIONS |
|
(2,750,608 |
) |
|
$ |
(26,994,829 |
) |
|
4,468,834 |
|
|
$ |
46,616,955 |
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||
|
|
|
Year Ended |
|
Year Ended |
||||||||||
|
Institutional Service Shares: |
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
|
Amount |
|
|
|
Shares sold |
|
2,491,880 |
|
|
$ |
24,527,203 |
|
|
3,365,052 |
|
|
$ |
35,358,782 |
|
|
Shares issued to shareholders in payment of distributions declared |
|
56,459 |
|
|
|
559,082 |
|
|
53,863 |
|
|
|
571,909 |
|
|
Shares redeemed |
|
(1,813,609 |
) |
|
|
(17,913,298 |
) |
|
(977,573 |
) |
|
|
(10,411,870 |
) |
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM INSTITUTIONAL SERVICE SHARE TRANSACTIONS |
|
734,730 |
|
|
$ |
7,172,987 |
|
|
2,441,342 |
|
|
$ |
25,518,821 |
|
|
|
||||||||||||||
|
NET CHANGE RESULTING FROM SHARE TRANSACTIONS |
|
(2,015,878 |
) |
|
$ |
(19,821,842 |
) |
|
6,910,176 |
|
|
$ |
72,135,776 |
|
|
|
||||||||||||||
Federated Investment Management Company, the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50% of the Trust's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee and reimburse certain operating expenses of the Trust. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion.
Federated Services Company ("FServ"), under the Administrative Services Agreement, provides the Trust with administrative personnel and services. The fee paid to FServ is based on a scale that ranges from 0.15% to 0.075% of the average aggregate daily net assets of all funds advised by subsidiaries of Federated Investors, Inc., subject to a $125,000 minimum per portfolio and $30,000 per each additional class.
The Trust has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Trust will compensate Federated Securities Corp. ("FSC"), the principal distributor, from the net assets of the Trust to finance activities intended to result in the sale of the Trust's Institutional Service Shares. The Plan provides that the Trust may incur distribution expenses up to 0.25% of the average daily net assets of the Institutional Service Shares, annually, to compensate FSC.
Under the terms of a Shareholder Services Agreement with Federated Shareholder Services Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily net assets of the Trust shares for the period. The fee paid to FSSC is used to finance certain services for shareholders and to maintain shareholder accounts. FSSC may voluntarily choose to waive any portion of its fee. FSSC can modify or terminate this voluntary waiver at any time at its sole discretion.
FServ, through its subsidiary 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.
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.
Organizational expenses of $42,365 were borne initially by the Adviser. The Fund reimbursed the Adviser for these expenses. These expenses have been deferred and are being amortized over the five-year period following the Fund's effective date. For the year ended February 29, 2000, the Fund amortized $6,656 of organizational expenses.
Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies.
Purchases and sales of investments, excluding short-term securities (and in-kind contribution), for the year ended February 29, 2000, were as follows:
|
Purchases |
|
$ |
89,524,074 |
|
|
|||
|
Sales |
|
$ |
113,114,109 |
|
|
|||
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Federated U.S. Government Securities Fund: 5-10 Years (the "Fund"), as of February 29, 2000, and the related statement of operations for the year then ended, statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended and for the period October 15, 1995 to February 29, 1996. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of February 29, 2000 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Federated U.S. Government Securities Fund: 5-10 Years at February 29, 2000, and the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the four years in the period then ended and for the period October 15, 1995 to February 29, 1996, in conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
April 18, 2000
A Statement of Additional Information (SAI) dated April 30, 2000, is incorporated by reference into this prospectus. Additional information about the Fund and its investments is contained in the Fund's SAI and Annual and Semi-Annual Reports to shareholders as they become available. The Annual Report's Management Discussion and Analysis discusses market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year. To obtain the SAI, Annual Report, Semi-Annual Report and other information without charge, and make inquiries, call your investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or visiting the Public Reference Room in Washington, DC. You may also access fund information from the EDGAR Database on the SEC's Internet site at http://www.sec.gov. You can purchase copies of this information by contacting the SEC by email at publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, DC 20549-0102. Call 1-202-942-8090 for information on the Public Reference Room's operations and copying fees.
Federated
World-Class Investment Manager
Federated Total
Return Government Bond Fund
Federated Investors Funds
5800 Corporate
Drive
Pittsburgh, PA
15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated
Securities Corp., Distributor
Investment Company Act File No. 811-07309
<R>
Cusip 31429A204
</R>
<R>
G01209-04-SS (11/00)
</R>
Federated is a registered mark of Federated Investors, Inc. 2000 ©Federated Investors, Inc.
<R>
</R>
<R>
(Formerly, Federated U.S. Government Securities Fund: 5-10 Years)
</R>
<R>
</R>
<R>
April 30, 2000 (Revised November 20, 2000)
</R>
<R>
This Statement of Additional Information (SAI) is not a prospectus. Read this SAI in conjunction with the prospectuses for the Institutional Shares and the Institutional Service Shares of Federated Total Return Government Bond Fund (Fund), dated April 30, 2000 (revised November 20, 2000). Obtain the prospectuses and the Annual Report's Management Discussion and Analysis without charge by calling 1-800-341-7400.
</R>
<R>
Federated
World-Class Investment Manager
Federated Total
Return Government Bond Fund
Federated Investors Funds
5800 Corporate
Drive
Pittsburgh, PA
15237-7000
1-800-341-7400
www.federatedinvestors.com
Federated
Securities Corp., Distributor
G01209-02 (11/00)
</R>
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
<R>
What Do Shares Cost? 5
</R>
<R>
How is the Fund Sold? 5
</R>
Subaccounting Services 5
<R>
Redemption in Kind 6
</R>
Massachusetts Partnership Law 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund? 7
How Does the Fund Measure Performance? 10
<R>
Who is Federated Investors, Inc.? 11
</R>
<R>
Addresses 13
</R>
The Fund is a diversified open-end, management investment company that was established under the laws of the Commonwealth of Massachusetts on June 14, 1995.
The Board of Trustees (the Board) has established two classes of shares of the Fund, known as Institutional Shares and Institutional Service Shares (Shares). This SAI relates to both classes of Shares. The Fund's investment adviser is Federated Investment Management Company (Adviser).
In pursuing its investment strategy, the Fund may invest in the following securities for any purpose that is consistent with its investment objective.
<R>
</R>
Treasury securities are direct obligations of the government of the United States. Treasury securities are generally regarded as having the lowest credit risks.
<R>
Agency securities are issued or guaranteed by a federal agency or other government sponsored entity acting under federal authority (a GSE). The United States supports some GSEs with its full faith and credit. Other GSEs receive support through federal subsidies, loans or other benefits. A few GSEs have no explicit financial support, but are regarded as having implied support because the federal government sponsors their activities. Agency securities are generally regarded as having low credit risks, but not as low as Treasury securities.
</R>
<R>
The Fund treats mortgage-backed securities guaranteed by GSEs as agency securities. Although a GSE guarantee protects against credit risks, it does not reduce the interest rate and prepayment risks of these mortgage-backed securities.
</R>
<R>
</R>
<R>
Fixed income securities pay interest, dividends or distributions at a specified rate. The rate may be a fixed percentage of the principal or adjusted periodically. In addition, the issuer of a fixed income security must repay the principal amount of the security, normally within a specified time. Fixed income securities provide more regular income than equity securities. However, the returns on fixed income securities are limited and normally do not increase with the issuer's earnings. This limits the potential appreciation of fixed income securities as compared to equity securities.
</R>
<R>
A security's yield measures the annual income earned on a security as a percentage of its price. A security's yield will increase or decrease depending upon whether it costs less (a discount) or more (a premium) than the principal amount. If the issuer may redeem the security before its scheduled maturity, the price and yield on a discount or premium security may change based upon the probability of an early redemption. Securities with higher risks generally have higher yields.
</R>
<R>
The following describes the types of fixed income securities in which the Fund may invest:
</R>
<R>
</R>
<R>
Mortgage-backed securities represent interests in pools of mortgages. The mortgages that comprise a pool normally have similar interest rates, maturities and other terms. Mortgages may have fixed or adjustable interest rates.
</R>
<R>
Mortgage-backed securities come in a variety of forms. Many have extremely complicated terms. The simplest form of mortgage-backed securities are pass-through certificates. An issuer of pass-through certificates gathers monthly payments from an underlying pool of mortgages. Then, the issuer deducts its fees and expenses and passes the balance of the payments onto the certificate holders once a month. Holders of pass-through certificates receive a pro rata share of all payments and prepayments from the underlying mortgages. As a result, the holders assume all the prepayment risks of the underlying mortgages.
</R>
<R>
The Fund may invest in mortgage-backed securities primarily by investing in another investment company (which is not available for general investment by the public) that owns those securities and that is advised by an affiliate of the Adviser. This other investment company is managed independently of the Fund and may incur additional administrative expenses. Therefore, any such investment by the Fund may be subject to duplicative expenses. However, the Adviser believes that the benefits and efficiencies of this approach should outweigh the potential additional expenses. The Fund may also invest in such securities directly.
</R>
<R>
</R>
<R>
The Fund invests in interests in pools of adjustable rate mortgages, which are known as ARMs. While fixed rate mortgage securities have a stated interest rate, ARMs have periodic adjustments in the interest rate on the underlying mortgages. The adjustable rate feature of the mortgages underlying the ARMs will help to limit sharp movements in the Fund's net asset value in response to normal fluctuations in interest rates. As interest rates on the mortgages underlying ARMs reset periodically (for example, semi-annually or annually), the yields of the ARMs held in the portfolio will gradually adjust to reflect the overall changes in interest rates.
</R>
<R>
</R>
<R>
CMOs, including interests in real estate mortgage investment conduits (REMICs), allocate payments and repayments from an underlying pass-through certificate among holders of different classes of mortgage-backed securities. This creates different prepayment and interest rate risks for each CMO class. The degree of increased or decreased prepayment risks depends upon the structure of the CMOs. However, the actual returns on any type of mortgage-backed security depend upon the performance of the underlying pool of mortgages, which no one can predict and will vary among pools.
</R>
<R>
</R>
<R>
In a sequential pay CMO, one class of CMOs receives all principal payments and prepayments. The next class of CMOs receives all principal payments after the first class is paid off. This process repeats for each sequential class of CMO. As a result, each class of sequential pay CMOs reduces the prepayment risks of subsequent classes.
</R>
<R>
</R>
<R>
More sophisticated CMOs include planned amortization classes (PACs) and targeted amortization classes (TACs). PACs and TACs are issued with companion classes. PACs and TACs receive principal payments and repayments at a specified rate. The companion classes receive principal payments and prepayments in excess of the specified rate. In addition, PACs will receive the companion classes' share of principal payments, if necessary, to cover a shortfall in the prepayment rate. This helps PACs and TACs to control prepayment risks by increasing the risks to their companion classes.
</R>
<R>
</R>
<R>
Another variant allocates interest payments between two classes of CMOs. One class (Floaters) receives a share of interest payments based upon a market index such as LIBOR. The other class (Inverse Floaters) receives any remaining interest payments from the underlying mortgages. Floater classes receive more interest (and Inverse Floater classes receive correspondingly less interest) as interest rates rise. This shifts prepayment and interest rate risks from the Floater to the Inverse Floater class, reducing the price volatility of the Floater class and increasing the price volatility of the Inverse Floater class.
</R>
Repurchase agreements are transactions in which the Fund buys a security from a dealer or bank and agrees to sell the security back at a mutually agreed upon time and price. The repurchase price exceeds the sale price, reflecting the Fund's return on the transaction. This return is unrelated to the interest rate on the underlying security. The Fund will enter into repurchase agreements only with banks and other recognized financial institutions, such as securities dealers, deemed creditworthy by the Adviser.
<R>
The Fund's custodian or subcustodian will take possession of the securities subject to repurchase agreements. The Adviser or subcustodian will monitor the value of the underlying security each day to ensure that the value of the security always equals or exceeds the repurchase price. Repurchase agreements are subject to credit risks.
</R>
<R>
</R>
Reverse repurchase agreements are repurchase agreements in which the Fund is the seller (rather than the buyer) of the securities, and agrees to repurchase them at an agreed upon time and price. A reverse repurchase agreement may be viewed as a type of borrowing by the Fund. Reverse repurchase agreements are subject to credit risks. In addition, reverse repurchase agreements create leverage risks because the Fund must repurchase the underlying security at a higher price, regardless of the market value of the security at the time of repurchase.
<R>
Delayed delivery transactions, including when-issued transactions, are arrangements in which the Fund buys securities for a set price, with payment and delivery of the securities scheduled for a future time. During the period between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund. The Fund records the transaction when it agrees to buy the securities and reflects their value in determining the price of its shares. Settlement dates may be a month or more after entering into these transactions so that the market values of the securities bought may vary from the purchase prices. Therefore, delayed delivery transactions create interest rate risks for the Fund. Delayed delivery transactions also involve credit risks in the event of a counterparty default. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, and not for investment leverage. Liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and are maintained until the transaction is settled.
</R>
<R>
</R>
<R>
As with other delayed delivery transactions, a seller agrees to issue a TBA security at a future date. However, the seller does not specify the particular securities to be delivered. Instead, the Fund agrees to accept any security that meets specified terms. For example, in a TBA mortgage-backed transaction, the Fund and the seller would agree upon the issuer, interest rate and terms of the underlying mortgages. The seller would not identify the specific underlying mortgages until it issues the security. TBA mortgage-backed securities increase market risks because the underlying mortgages may be less favorable than anticipated by the Fund.
</R>
<R>
</R>
<R>
The Fund may engage in dollar roll transactions with respect to mortgage securities issued by the Government National Mortgage Association, Federal National Mortgage Association, and Federal Home Loan Mortgage Corporation. Dollar rolls are transactions where the Fund sells mortgage-backed securities with a commitment to buy similar, but not identical, mortgage-backed securities on a future date at a lower price. Normally, one or both securities involved are TBA mortgage-backed securities. Dollar rolls are subject to market risks and credit risks.
</R>
In order to secure its obligations in connection with derivatives contracts or special transactions, the Fund will either own the underlying assets, enter into an offsetting transaction or set aside readily marketable securities with a value that equals or exceeds the Fund's obligations. Unless the Fund has other readily marketable assets to set aside, it cannot trade assets used to secure such obligations without entering into an offsetting derivative contract or terminating a special transaction. This may cause the Fund to miss favorable trading opportunities or to realize losses on derivative contracts or special transactions.
<R>
</R>
<R>
The SEC has granted an exemption that permits the Fund and all other funds advised by subsidiaries of Federated Investors, Inc. (Federated Funds) to lend and borrow money for certain temporary purposes directly to and from other Federated Funds. Participation in this inter-fund lending program is voluntary for both borrowing and lending funds, and an inter-fund loan is only made if it benefits each participating fund. Federated administers the program according to procedures approved by the Fund's Board of Directors (the "Board"), and the Board monitors the operation of the program. Any inter-fund loan must comply with certain conditions set out in the exemption, which are designed to assure fairness and protect all participating funds.
</R>
For example, inter-fund lending is permitted only: (a) to meet shareholder redemption requests; and (b) to meet commitments arising from "failed" trades. All inter-fund loans must be repaid in seven days or less. The Fund's participation in this program must be consistent with its investment policies and limitations, and must meet certain percentage tests. Inter-fund loans may be made only when the rate of interest to be charged is more attractive to the lending fund than market-competitive rates on overnight repurchase agreements (the "Repo Rate") and more attractive to the borrowing fund than the rate of interest that would be charged by an unaffiliated bank for short-term borrowings (the "Bank Loan Rate"), as determined by the Board. The interest rate imposed on inter-fund loans is the average of the Repo Rate and the Bank Loan Rate.
<R>
</R>
<R>
The Fund may lend portfolio securities to borrowers that the Adviser deems creditworthy. In return, the Fund receives cash or liquid securities from the borrower as collateral. The borrower must furnish additional collateral if the market value of the loaned securities increases. Also, the borrower must pay the Fund the equivalent of any dividends or interest received on the loaned securities.
</R>
<R>
The Fund will reinvest cash collateral in securities that qualify as an acceptable investment for the Fund. However, the Fund must pay interest to the borrower for the use of cash collateral.
</R>
<R>
Loans are subject to termination at the option of the Fund or the borrower. The Fund will not have the right to vote on securities while they are on loan, but it will terminate a loan in anticipation of any important vote. The Fund may pay administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash collateral to a securities lending agent or broker. Securities lending activities are subject to interest rate risks and credit risks.
</R>
There are many factors which may affect an investment in the Fund. The Fund's principal risks are described in its prospectus. Additional risk factors are outlined below.
<R>
</R>
<R>
</R>
<R>
</R>
The Fund's investment objective is to pursue total return consistent with current income. The investment objective may not be changed by the Fund's Trustees without shareholder approval.
With respect to securities comprising 75% of the value of its total assets, the Fund will not purchase securities of any one issuer (other than cash; cash items; 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; and securities of other investment companies) if, as a result, more than 5% of the value of its total assets would be invested in the securities of that issuer, or the Fund would own more than 10% of the outstanding voting securities of that issuer.
The Fund may not underwrite the securities of other issuers, except that the Fund may engage in transactions involving the acquisition, disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933.
The Fund may not purchase or sell physical commodities, provided that the Fund may purchase securities of companies that deal in commodities.
The Fund may not purchase or sell real estate, provided that this restriction does not prevent the Fund from investing in issuers which invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein. The Fund may exercise its rights under agreements relating to such securities, including the right to enforce security interests and to hold real estate acquired by reason of such enforcement until that real estate can be liquidated in an orderly manner.
The Fund may borrow money, directly or indirectly, and issue senior securities to the maximum extent permitted under the 1940 Act.
The Fund may not make loans, provided that this restriction does not prevent the Fund from purchasing debt obligations, entering into repurchase agreements, lending its assets to broker/dealers or institutional investors and investing in loans, including assignments and participation interests.
The Fund will not make investments that will result in the concentration of its investments in the securities of issuers primarily engaged in the same industry. Government securities, municipal securities and bank instruments will not be deemed to constitute an industry.
The above limitations cannot be changed unless authorized by the Board and by the "vote of a majority of its outstanding voting securities," as defined by the Investment Company Act of 1940 (1940 Act). The following limitations, however, may be changed by the Board without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective.
In applying the concentration restriction: (a) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (b) financial service companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance will each be considered a separate industry; and (c) asset-backed securities will be classified according to the underlying assets securing such securities.
The Fund will not purchase securities on margin, provided that the Fund may obtain short-term credits necessary for the clearance of purchases and sales of securities.
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided that this shall not apply to the transfer of securities in connection with any permissible borrowing or to collateral arrangements in connection with permissible activities.
The Fund will not purchase securities for which there is no readily available market, or enter into repurchase agreements or purchase time deposits maturing in more than seven days, if immediately after and as a result, the value of such securities would exceed, in the aggregate, 15% of the Fund's net assets.
Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction.
For purposes of its policies and limitations, the Fund 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."
Market values of the Fund's portfolio securities are determined as follows:
Prices provided by independent pricing services may be determined without relying exclusively on quoted prices and may consider institutional trading in similar groups of securities, yield, quality, stability, risk, coupon rate, maturity, type of issue, trading characteristics, and other market data or factors. From time to time, when prices cannot be obtained from an independent pricing service, securities may be valued based on quotes from broker/dealers or other financial institutions that trade the securities.
The Fund's net asset value (NAV) per Share fluctuates and is based on the market value of all securities and other assets of the Fund.
The NAV for each class of Shares may differ due to the variance in daily net income realized by each class. Such variance will reflect only accrued net income to which the shareholders of a particular class are entitled.
Under the Distributor's Contract with the Fund, the Distributor (Federated Securities Corp.) offers Shares on a continuous, best-efforts basis. The Distributor pays the expenses of the distribution of Fund shares, including advertising expenses and the costs of printing sales material and prospectuses used to offer shares to the public. The Fund pays the expenses of preparing and printing amendments to its registration statements and prospectuses (other than those necessitated by the activities of the Distributor) and of sending prospectuses to existing shareholders. In the SAI section "Fees Paid by the Fund for Services," there is disclosed, as applicable, the underwriting commissions the Distributor received in connection with the offering of the Fund's shares, the net underwriting discounts and commissions the Distributor retained after allowances to investment professionals, and the amounts the Distributor received in connection with redemptions or repurchases of shares for the last three fiscal years of the Fund. The Distributor may be entitled to reimbursement under the Rule 12b-1 Plan, as discussed below. Except as noted, the Distributor received no other compensation from the Fund for acting as underwriter.
As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the Distributor (who may then pay investment professionals such as banks, broker/dealers, trust departments of banks, and registered investment advisers) for marketing activities (such as advertising, printing and distributing prospectuses, and providing incentives to investment professionals) to promote sales of Shares so that overall Fund assets are maintained or increased. This helps the Fund achieve economies of scale, reduce per share expenses, and provide cash for orderly portfolio management and Share redemptions. In addition, the Fund's service providers that receive asset-based fees also benefit from stable or increasing Fund assets.
The Fund may compensate the Distributor more or less than its actual marketing expenses. In no event will the Fund pay for any expenses of the Distributor that exceed the maximum Rule 12b-1 Plan fee.
The Fund may pay Federated Shareholder Services Company, a subsidiary of Federated Investors, Inc. (Federated), for providing shareholder services and maintaining shareholder accounts. Federated Shareholder Services Company may select others to perform these services for their customers and may pay them fees.
Investment professionals (such as broker/dealers or banks) may be paid fees, in significant amounts, out of the assets of the Distributor Federated Shareholder Services Company (these fees do not come out of Fund assets). The Distributor and/or Federated Funds this is Federated Shareholder Services Company may be reimbursed by the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related and/or shareholder services, such as advertising, providing incentives to their sales personnel, sponsoring other activities intended to promote sales, and maintaining shareholder accounts These payments may be based upon such factors as the number or value of Shares the investment professional sells or may sell; the value of client assets invested; and/or the type and nature of sales or marketing support furnished by the investment professional.
Certain investment professionals may wish to use the transfer agent's subaccounting system to minimize their internal recordkeeping requirements. The transfer agent may charge a fee based on the level of subaccounting services rendered. Investment professionals holding Shares in a fiduciary, agency, custodial or similar capacity may charge or pass through subaccounting fees as part of or in addition to normal trust or agency account fees. They may also charge fees for other services that may be related to the ownership of Shares. This information should, therefore, be read together with any agreement between the customer and the investment professional about the services provided, the fees charged for those services, and any restrictions and limitations imposed.
Although the Fund intends to pay Share redemptions in cash, it reserves the right, as described below, to pay the redemption price in whole or in part by a distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the 1940 Act, the Fund is obligated to pay Share redemptions to any one shareholder in cash only up to the lesser of $250,000 or 1% of the net assets represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash unless the Fund's Board determines that payment should be in kind. In such a case, the Fund will pay all or a portion of the remainder of the redemption in portfolio securities, valued in the same way as the Fund determines its NAV. The portfolio securities will be selected in a manner that the Fund's Board deems fair and equitable and, to the extent available, such securities will be readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving the portfolio securities and selling them before their maturity could receive less than the redemption value of the securities and could incur certain transaction costs.
Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for obligations of the Fund. To protect its shareholders, the Fund has filed legal documents with Massachusetts that expressly disclaim the liability of its shareholders for acts or obligations of the Fund.
In the unlikely event a shareholder is held personally liable for the Fund's obligations, the Fund is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Fund will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Fund. Therefore, financial loss resulting from liability as a shareholder will occur only if the Fund itself cannot meet its obligations to indemnify shareholders and pay judgments against them.
Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders for vote.
All Shares of the Fund have equal voting rights, except that in matters affecting only a particular class, only Shares of that class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A special meeting of shareholders will be called by the Board upon the written request of shareholders who own at least 10% of the Fund's outstanding shares.
As of April 4, 2000, the following shareholders owned of record, beneficially, or both, 5% or more of outstanding Institutional Shares: Shoreline Co., South Haven, Michigan, owned approximately 391,529 shares (5.69%); Resources Trust Company (for the exclusive benefit of its customers), Englewood, Colorado, owned approximately 1,390,149 shares (20.20%); and Charles Schwab & Co., Inc., San Francisco, California, owned approximately 1,997,956 shares (29.04%).
As of April 4, 2000, the following shareholders owned of record, beneficially, or both, 5% or more of outstanding Institutional Service Shares: The Washington Trust Co., Westerly, Rhode Island, owned approximately 186,028 shares (5.20%); Revest & Co., Oaks, Pennsylvania, owned approximately 337,196 shares (9.42%); Simtrust and Co., Pine Bluff, Arizona, owned approximately 486,728 shares (13.60%); FNB Nominee Co., Indiana, Pennsylvania, owned approximately 684,932 shares (19.14%); and Milards & Co., Oaks, Pennsylvania owned approximately 1,166,948 shares (32.61%).
Shareholders owning 25% or more of outstanding Shares may be in control and be able to affect the outcome of certain matters presented for a vote of shareholders.
The Fund intends to meet requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. If these requirements are not met, it will not receive special tax treatment and will pay federal income tax.
The Fund is entitled to a loss carryforward, which may reduce the taxable income or gain that the Fund would realize, and to which the shareholder would be subject, in the future.
The Board is responsible for managing the Fund's business affairs and for exercising all the Fund's powers except those reserved for the shareholders. Information about each Board member is provided below and includes each person's: name, address, birth date, present position(s) held with the Fund, principal occupations for the past five years and positions held prior to the past five years, total compensation received as a Trustee from the Fund for its most recent fiscal year, and the total compensation received from the Federated Fund Complex for the most recent calendar year. The Federated Fund Complex is comprised of 43 investment companies, whose investment advisers are affiliated with the Fund's Adviser.
As of April 4, 2000, the Fund's Board and Officers as a group owned less than 1% of the Fund's outstanding Institutional Shares and Institutional Service Shares.
|
Name |
|
Principal Occupations |
|
Aggregate |
|
Total |
|
John F. Donahue*†# |
|
Chief Executive Officer and Director or Trustee of the Federated Fund Complex; Chairman and Director, Federated Investors, Inc.; Chairman, Federated Investment Management Company, Federated Global Investment Management Corp. and Passport Research, Ltd.; formerly: Trustee, Federated Investment Management Company and Chairman and Director, Federated Investment Counseling. |
|
$0 |
|
$0 for the Fund and |
|
Thomas G. Bigley |
|
Director or Trustee of the Federated Fund Complex; Director, Member of Executive Committee, Children's Hospital of Pittsburgh; Director, Robroy Industries, Inc. (coated steel conduits/computer storage equipment); formerly: Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc. (physician practice management); Director, Member of Executive Committee, University of Pittsburgh. |
|
$1,093.13 |
|
$116,760.63 for the |
|
John T. Conroy, Jr. |
|
Director or Trustee of the Federated Fund Complex; 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. |
|
$1,173.19 |
|
$128,455.37 for the |
|
Nicholas P. Constantakis |
|
Director or Trustee of the Federated Fund Complex; Director, Michael Baker Corporation (engineering, construction, operations and technical services); formerly: Partner, Andersen Worldwide SC. |
|
$1,093.13 |
|
$73,191.21 for the |
|
John F. Cunningham |
|
Director or Trustee of some of the Federated Fund Complex; Chairman,
President and Chief Executive Officer, Cunningham & Co., Inc.
(strategic business consulting); Trustee Associate, Boston College;
Director, Iperia Corp. (communications/software); formerly: Director,
Redgate Communications and EMC Corporation (computer storage systems). |
|
$1,066.38 |
|
$93,190.48 for the |
|
Lawrence D. Ellis, M.D.* |
|
Director or Trustee of the Federated Fund Complex; Professor of Medicine, University of Pittsburgh; Medical Director, University of Pittsburgh Medical Center--Downtown; Hematologist, Oncologist and Internist, University of Pittsburgh Medical Center; Member, National Board of Trustees, Leukemia Society of America. |
|
$1,066.38 |
|
$116,760.63 for the |
|
Peter E. Madden |
|
Director or Trustee of the Federated Fund Complex; formerly:
Representative, Commonwealth of Massachusetts General Court; President,
State Street Bank and Trust Company and State Street Corporation. |
|
$971.70 |
|
$109,153.60 for the |
|
|
|
|
|
|
|
|
|
Name |
|
Principal Occupations |
|
Aggregate |
|
Total |
|
Charles F. Mansfield, Jr. |
|
Director or Trustee of some of the Federated Fund Complex; Executive Vice
President, Legal and External Affairs, Dugan Valva Contess, Inc.
(marketing, communications, technology and consulting); formerly:
Management Consultant. |
|
$1,146.67 |
|
$102,573.91 for the |
|
John E. Murray, Jr., J.D., S.J.D.# |
|
Director or Trustee of the Federated Fund Complex; President, Law
Professor, Duquesne University; Consulting Partner, Mollica & Murray;
Director, Michael Baker Corp. (engineering, construction, operations and
technical services). |
|
$1,146.45 |
|
$128,455.37 for the |
|
Marjorie P. Smuts |
|
Director or Trustee of the Federated Fund Complex; Public
Relations/Marketing/Conference Planning. |
|
$1,066.38 |
|
$116,760.63 for the |
|
John S. Walsh |
|
Director or Trustee of some of the Federated Fund Complex; President and Director, Heat Wagon, Inc. (manufacturer of construction temporary heaters); President and Director, Manufacturers Products, Inc. (distributor of portable construction heaters); President, Portable Heater Parts, a division of Manufacturers Products, Inc.; Director, Walsh & Kelly, Inc. (heavy highway contractor); formerly: Vice President, Walsh & Kelly, Inc. |
|
$1,066.38 |
|
$94,536.85 for the Fund |
|
Glen R. Johnson |
|
President of some of the Funds in the Federated Fund Complex; Staff member, Federated Securities Corp.; formerly: Trustee or Director of some of the Funds in the Federated Fund Complex. |
|
$0 |
|
$0 for the Fund and |
|
J. Christopher Donahue†* |
|
President or Executive Vice President of the Federated Fund Complex; Director or Trustee of some of the Funds in the Federated Fund Complex; President, Chief Executive Officer and Director, Federated Investors, Inc.; President, Chief Executive Officer and Trustee, Federated Investment Management Company; Trustee, Federated Investment Counseling; President, Chief Executive Officer and Director, Federated Global Investment Management Corp.; President and Chief Executive Officer, Passport Research, Ltd.; Trustee, Federated Shareholder Services Company; Director, Federated Services Company; formerly: President, Federated Investment Counseling. |
|
$0 |
|
$0 for the Fund and |
|
Edward C. Gonzales |
|
President, Executive Vice President and Treasurer of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Trustee, Federated Administrative Services; formerly: Trustee or Director of some of the Funds in the Federated Fund Complex; CEO and Chairman, Federated Administrative Services; Vice President, Federated Investment Management Company, Federated Investment Counseling, Federated Global Investment Management Corp. and Passport Research, Ltd.; Director and Executive Vice President, Federated Securities Corp.; Director, Federated Services Company; Trustee, Federated Shareholder Services Company. |
|
$0 |
|
$0 for the Fund and |
|
John W. McGonigle |
|
Executive Vice President and Secretary of the Federated Fund Complex; Executive Vice President, Secretary and Director, Federated Investors, Inc.; formerly: Trustee, Federated Investment Management Company and Federated Investment Counseling; Director, Federated Global Investment Management Corp., Federated Services Company and Federated Securities Corp. |
|
$0 |
|
$0 for the Fund and |
|
Richard J. Thomas |
|
Treasurer of the Federated Fund Complex; Senior Vice President, Federated Administrative Services; formerly: Vice President, Federated Administrative Services; held various management positions within Funds Financial Services Division of Federated Investors, Inc. |
|
$0 |
|
$0 for the Fund and |
|
|
|
|
|
|
|
|
|
Name |
|
Principal Occupations |
|
Aggregate |
|
Total |
|
Richard B. Fisher |
|
President or Vice President of some of the Funds in the Federated Fund Complex; Vice Chairman, Federated Investors, Inc.; Chairman, Federated Securities Corp.; formerly: Director or Trustee of some of the Funds in the Federated Fund Complex,; Executive Vice President, Federated Investors, Inc. and Director and Chief Executive Officer, Federated Securities Corp. |
|
$0 |
|
$0 for the Fund and |
|
William D. Dawson III |
|
Chief Investment Officer of this Fund and various other Funds in the Federated Fund Complex; Executive Vice President, Federated Investment Counseling, Federated Global Investment Management Corp., Federated Investment Management Company and Passport Research, Ltd.; Director, Federated Global Investment Management Corp. and Federated Investment Management Company; Registered Representative, Federated Securities Corp.; Portfolio Manager, Federated Administrative Services; Vice President, Federated Investors, Inc.; formerly: Executive Vice President and Senior Vice President, Federated Investment Counseling Institutional Portfolio Management Services Division; Senior Vice President, Federated Investment Management Company and Passport Research, Ltd. |
|
$0 |
|
$0 for the Fund and |
|
Susan M. Nason |
|
Susan M. Nason has been the Fund's Portfolio Manager since its inception. She is Vice President of the Fund. Ms. Nason joined Federated in 1987 and has been a Senior Portfolio Manager and Senior Vice President of the Fund's Adviser since 1997. Ms. Nason served as a Portfolio Manager and Vice President of the Adviser from 1993 to 1997. Ms. Nason is a Chartered Financial Analyst and received her M.S.I.A. concentrating in Finance from Carnegie Mellon University. |
|
$0 |
|
$0 for the Fund and |
|
Kathleen M. Foody-Malus |
|
Kathleen M. Foody-Malus has been the Fund's Portfolio Manager since November 2000. She is Vice President of the Fund. Ms. Foody-Malus joined Federated in 1983 and has been a Senior Portfolio Manager since 1996 and a Vice President of the Fund's Adviser since 1993. She was a Portfolio Manager and a Vice President of the Fund's Adviser from 1993 to 1996. Ms. Foody-Malus received her M.B.A. in Accounting/Finance from the University of Pittsburgh. |
|
$0 |
|
0 for the Fund and |
|
|
|
|
|
|
|
|
* An asterisk denotes a Trustee who is deemed to be an interested person as defined in the 1940 Act.
# A pound sign denotes a Member of the Board's Executive Committee, which handles the Board's responsibilities between its meetings.
† Mr. Donahue is the father of J. Christopher Donahue, Executive Vice President and Trustee of the Fund.
The Adviser conducts investment research and makes investment decisions for the Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Fund or any Fund 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 Fund.
Affiliates of the Adviser may, from time to time, provide certain electronic equipment and software to institutional customers in order to facilitate the purchase of Fund Shares offered by the Distributor.
As required by SEC rules, the Fund, its Adviser, and its Distributor have adopted codes of ethics. These codes govern securities trading activities of investment personnel, Fund Trustees, and certain other employees. Although they do permit these people to trade in securities, including those that the Fund could buy, they also contain significant safeguards designed to protect the Fund and its shareholders from abuses in this area, such as requirements to obtain prior approval for, and to report, particular 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. 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. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling Shares of the Fund and other funds distributed by the Distributor and its affiliates. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other accounts managed by the Adviser. When the Fund and one or more of those accounts invests in, or disposes of, the same security, available investments or opportunities for sales will be allocated among the Fund and the account(s) in a manner believed by the Adviser to be equitable. While the coordination and ability to participate in volume transactions may benefit the Fund, it is possible that this procedure could adversely impact the price paid or received and/or the position obtained or disposed of by the Fund.
Federated Services Company, a subsidiary of Federated, provides administrative personnel and services (including certain legal and financial reporting services) necessary to operate the Fund. Federated Services Company provides these at the following annual rate of the average aggregate daily net assets of all Federated Funds as specified below:
|
Maximum |
|
Average Aggregate Daily |
|
0.150 of 1% |
|
on the first $250 million |
|
0.125 of 1% |
|
on the next $250 million |
|
0.100 of 1% |
|
on the next $250 million |
|
0.075 of 1% |
|
on assets in excess of $750 million |
The administrative fee received during any fiscal year shall be at least $125,000 per portfolio and $30,000 per each additional class of Shares. Federated Services Company may voluntarily waive a portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping services with respect to the Fund's portfolio investments for a fee based on Fund assets plus out-of-pocket expenses.
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the securities and cash of the Fund.
Federated Services Company, through its registered transfer agent subsidiary, Federated Shareholder Services Company, maintains all necessary shareholder records. The Fund pays the transfer agent a fee based on the size, type and number of accounts and transactions made by shareholders.
The independent auditor for the Fund, Ernst & Young LLP, plans and performs its audit so that it may provide an opinion as to whether the Fund's financial statements and financial highlights are free of material misstatement.
|
For the Year Ended February 28 |
|
2000 |
|
1999 |
|
1998 |
|
Advisory Fee Earned |
|
$515,770 |
|
$386,212 |
|
$143,246 |
|
|
||||||
|
Advisory Fee Reduction |
|
515,770 |
|
386,212 |
|
143,246 |
|
|
||||||
|
Administrative Fee |
|
155,000 |
|
155,001 |
|
155,001 |
|
|
||||||
|
<R>12b-1 Fee Accrued by Distributor:</R> |
|
|
|
|
|
|
|
|
||||||
|
Institutional Service Shares |
|
72,718 |
|
-- |
|
-- |
|
|
||||||
|
<R>12b-Fee Retained by Distributor:</R> |
|
|
|
|
|
|
|
|
||||||
|
Institutional Service Shares |
|
0 |
|
-- |
|
-- |
|
|
||||||
|
<R>Shareholder Services Fee:</R> |
|
|
|
|
|
|
|
|
||||||
|
Institutional Shares |
|
29,626 |
|
-- |
|
-- |
|
|
||||||
|
Institutional Service Shares |
|
26,179 |
|
-- |
|
-- |
|
|
||||||
Fees are allocated among classes based on their pro rata share of Fund assets, except for marketing (Rule 12b-1) fees and shareholder services fees, which are borne only by the applicable class of Shares.
The Fund may advertise Share performance by using the Securities and Exchange Commission's (SEC) standard method for calculating performance applicable to all mutual funds. The SEC also permits this standard performance information to be accompanied by non-standard performance information.
The performance of Shares depends upon such variables as: portfolio quality; average portfolio maturity; type and value of portfolio securities; changes in interest rates; changes or differences in the Fund's or any class of Shares' expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings fluctuate daily. Both net earnings and offering price per Share are factors in the computation of yield and total return.
Total returns are given for the one-year and Start of Performance periods ended February 29, 2000.
Yield is given for the 30-day period ended February 29, 2000.
|
Share Class |
|
30-Day Period |
|
1 Year |
|
Start of |
|
Institutional Shares: |
|
|
|
|
|
|
|
Total Return |
|
NA |
|
(0.96%) |
|
5.09% |
|
Yield |
|
6.63% |
|
NA |
|
NA |
|
|
|
|
|
|
|
|
|
Institutional Shares: |
|
|
|
|
|
|
|
Total Return |
|
NA |
|
(1.26%) |
|
4.76% |
|
Yield |
|
6.33% |
|
NA |
|
NA |
Total return represents the change (expressed as a percentage) in the value of Shares over a specific period of time, and includes the investment of income and capital gains distributions.
The average annual total return for Shares 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 NAV 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, less any applicable sales charge, adjusted over the period by any additional Shares, assuming the annual reinvestment of all dividends and distributions.
The yield of Shares is calculated by dividing: (i) the net investment income per Share earned by the Shares over a 30-day period; by (ii) the maximum offering price per Share on the last day of the period. This number is then annualized using semi-annual compounding. This means that the amount of income generated during the 30-day period is assumed to be generated each month over a 12-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by Shares because of certain adjustments required by the SEC and, therefore, may not correlate to the dividends or other distributions paid to shareholders.
To the extent investment professionals and broker/dealers charge fees in connection with services provided in conjunction with an investment in Shares, the Share performance is lower for shareholders paying those fees.
Advertising and sales literature may include:
The Fund may compare its performance, or performance for the types of securities in which it invests, to a variety of other investments, including federally insured bank products such as bank savings accounts, certificates of deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual countries and regions, world stock exchanges, and economic and demographic statistics.
You may use financial publications and/or indices to obtain a more complete view of Share performance. When comparing performance, you should consider all relevant factors such as the composition of the 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 Fund uses in advertising may include:
Lipper Analytical Services, Inc. ranks funds in various categories by making comparative calculations using total return. Total return assumes the reinvestment of all capital gains distributions and income dividends and takes into account any change in net asset value over a specific period of time. From time to time, the Trust will quote its Lipper ranking in the "U.S. government funds" category in advertising and sales literature.
Merrill Lynch 5-10 Year Treasury Index is an unmanaged index tracking U.S. government securities with maturities between 5 and 9.99 years.
<R>
</R>
<R>
Lehman Brothers Government Bond Index is composed of U.S. government and government agency bonds.
</R>
Federated is dedicated to meeting investor needs by making structured, straightforward and consistent investment decisions. Federated investment products have a history of competitive performance and have gained the confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound methodologies backed by fundamental and technical research. At Federated, success in investment management does not depend solely on the skill of a single portfolio manager. It is a fusion of individual talents and state-of-the-art industry tools and resources. Federated's investment process involves teams of portfolio managers and analysts, and investment decisions are executed by traders who are dedicated to specific market sectors and who handle trillions of dollars in annual trading volume.
In the municipal sector, as of December 31, 1999, Federated managed 12 bond funds with approximately $2.0 billion in assets and 24 money market funds with approximately $13.1 billion in total assets. In 1976, Federated introduced one of the first municipal bond mutual funds in the industry and is now one of the largest institutional buyers of municipal securities. The Funds may quote statistics from organizations including The Tax Foundation and the National Taxpayers Union regarding the tax obligations of Americans.
In the equity sector, Federated has more than 29 years' experience. As of December 31, 1999, Federated managed 53 equity funds totaling approximately $18.3 billion in assets across growth, value, equity income, international, index and sector (i.e., utility) styles. Federated's value-oriented management style combines quantitative and qualitative analysis and features a structured, computer-assisted composite modeling system that was developed in the 1970s.
In the corporate bond sector, as of December 31, 1999, Federated managed 13 money market funds and 29 bond funds with assets approximating $35.7 billion and $7.7 billion, respectively. Federated's corporate bond decision making--based on intensive, diligent credit analysis--is backed by over 27 years of experience in the corporate bond sector. In 1972, Federated introduced one of the first high-yield bond funds in the industry. In 1983, Federated was one of the first fund managers to participate in the asset backed securities market, a market totaling more than $209 billion.
<R>
In the government sector, as of December 31, 1999, Federated managed 9 mortgage-backed, 11 government/agency and 16 government money market mutual funds, with assets approximating $4.7 billion, $1.6 billion and $34.1 billion, respectively. Federated trades approximately $450 million in U.S. government and mortgage-backed securities daily and places approximately $25 billion in repurchase agreements each day. Federated introduced the first U.S. government fund to invest in U.S. government bond securities in 1969. Federated has been a major force in the short- and intermediate-term government markets since 1982 and currently manages approximately $43.8 billion in government funds within these maturity ranges.
</R>
In the money market sector, Federated 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, 1999, Federated managed more than $83.0 billion in assets across 54 money market funds, including 16 government, 13 prime, 24 municipal and 1 euro-denominated with assets approximating $34.1 billion, $35.7 billion, $13.1 billion and $115 million, respectively.
The Chief Investment Officers responsible for oversight of the various investment sectors within Federated are: U.S. equity and high yield--J. Thomas Madden; U.S. fixed income--William D. Dawson III; and global equities and fixed income--Henry A. Frantzen. The Chief Investment Officers are Executive Vice Presidents of the Federated advisory companies.
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 $5 trillion to the more than 7,300 funds available, according to the Investment Company Institute.
Federated distributes mutual funds through its subsidiaries for a variety of investment purposes. Specific markets include:
Federated meets the needs of approximately 1,160 institutional clients nationwide by managing and servicing separate accounts and mutual funds for a variety of purposes, 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 advisers. The marketing effort to these institutional clients is headed by John B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
Other institutional clients include more than 1,600 banks and trust organizations. Virtually all of the trust divisions of the top 100 bank holding companies use Federated Funds in their clients' portfolios. The marketing effort to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank Marketing & Sales.
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, Broker/Dealer Sales Division, Federated Securities Corp.
<R>
</R>
Institutional Shares
Institutional Service Shares
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116-5072
|
|