STATEMENT OF ADDITIONAL INFORMATION
FEDERATED MASTER TRUST
This Statement of Additional Information (SAI) is not a prospectus. Read
this SAI in conjunction with the prospectus for Federated Master
Trust(Fund)dated January 31, 1999.
Obtain the prospectus without charge by calling 1-800-341-7400.
january 31, 1999
CONTENTS
How is the Fund Organized?
Securities in Which the Fund Invests
How is the Fund Sold?
Subaccounting Services
Redemption in Kind
Massachusetts Partnership Law
Account and Share Information
Tax Information
Who Manages and Provides Services to the Fund?
How Does the Fund Measure Performance?
Who is Federated Investors, Inc.?
Addresses
CUSIP 314214107
8010411B (1/99)
HOW IS THE FUND ORGANIZED?
The Fund is a diversified, open-end management investment company that was
established under the laws of the Commonwealth of Massachusetts on October 10,
1977.
SECURITIES IN WHICH THE FUND INVESTS
In pursuing its investment strategy, the Fund may invest in the following
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
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.
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.
The following describes the typeS of fixed income securities in which the
Fund invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Investors regard treasury securities as having the lowest credit
risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (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. Investors regard agency
securities as having low credit risks, but not as low as treasury securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months
or less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default. The short
maturity of commercial paper reduces both the market and credit risks as
compared to other debt securities of the same issuer.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities may also resemble
some types of CMOs, such as Floaters, Inverse Floaters, IOs and POs.
MUNICIPAL SECURITIES
Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although many municipal securities are
exempt from federal income tax, the Fund may invest in taxable municipal
securities.
MORTGAGE BACKED SECURITIES
For purposes of repurchase agreements, the Fund treats mortgage backed
securities guaranteed by GSEs as agency securities. 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. Interests in pools of adjustable rate
mortgages are know as ARMs.
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 pre-payments from the underlying mortgages.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final
maturity unlike debt securities that provide periodic payments of interest
(referred to as a coupon payment). Investors buy zero coupon securities at a
price below the amount payable at maturity. The difference between the purchase
price and the amount paid at maturity represents interest on the zero coupon
security. An investor must wait until maturity to receive interest and
principal, which increases the market and credit risks of a zero coupon
security.
There are many forms of zero coupon securities. Some are issued at a
discount and are referred to as zero coupon or capital appreciation bonds.
Others are created from interest bearing bonds by separating the right to
receive the bond's coupon payments from the right to receive the bond's
principal due at maturity, a process known as coupon stripping. Treasury STRIPs
are the most common forms of stripped U.S. Treasury zero coupon securities.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks.
INSURANCE CONTRACTS
Insurance contracts include guaranteed investment contracts, funding
agreements and annuities. The Fund treats these contracts as fixed income
securities.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security after the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly to
the security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit,
bond insurance and surety bonds. Credit enhancement also includes arrangements
where securities or other liquid assets secure payment of a fixed income
security. Following a default, these assets may be sold and the proceeds paid to
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United
States. The Fund considers an issuer to be based outside the United States if:
o it is organized under the laws of, or has a principal office located in,
another country;
o the principal trading market for its securities is in another country; or
o it (or its subsidiaries) derived in its most current fiscal year at least
50% of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
The Fund does not invest in foreign securities denominated in foreign
currencies. Along with the risks normally associated with domestic securities of
the same type, foreign securities are subject to risks of foreign investing.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
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.
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.
WHEN ISSUED TRANSACTIONS
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, when issued
transactions create market risks for the Fund. When issued transactions also
involve credit risks in the event of a counterparty default.
TO BE ANNOUNCED SECURITIES (TBAS)
As with other when issued 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. However, 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.
ASSET COVERAGE
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 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.
INVESTMENT RATINGS
An nationally recognized ratings service's highest rating category is
determined without regard for sub-categories and gradations. For example,
securities rated A-1 or A-1+ by Standard & Poor's Ratings Group ("S&P"), Prime-1
by Moody's Investors Service, Inc. ("Moody's"), or F-1 (+or-) by Fitch Investors
Service, Inc. ("Fitch") are all considered rated in the highest short-term
rating category. The Fundwill follow applicable regulations in determining
whether a security rated by more than one nationally recognized ratings service
can be treated as being in the highest short-term rating category; currently,
such securities must be rated by two nationally recognized ratings services
highest rating category. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may effect an investment in the Fund. The
Fund's principal risks are described in its prospectus. Additional risk factors
are outlined below.
INVESTMENT RISKS
CREDIT RISKS
O Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the
Fund will lose money.
o Credit risk includes the possibility that a party to a transaction
involving the Fund will fail to meet its obligations. This could cause the
Fund to lose the benefit of the transaction or prevent the Fund from
selling or buying other securities to implement its investment strategy.
LIQUIDITY RISKS
Trading opportunities are more limited for fixed income securities that
have not received any credit ratings, have received ratings below investment
grade or are not widely held. These features may make it more difficult to sell
or buy a security at a favorable price or time. Consequently, the Fund may have
to accept a lower price to sell a security, sell other securities to raise cash
or give up an investment opportunity, any of which could have a negative effect
on the Fund's performance.
Infrequent trading may also lead to greater price volatility.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable that those of the United States.
Foreign financial markets may also have fewer investor protections. Securities
in foreign markets may also be subject to taxation policies that reduce returns
for U.S. investors.
Due to these risk factors, foreign securities may be more volatile and less
liquid than similar securities traded in the U.S.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but it may obtain such short-term credits as may be necessary for
clearance of purchase and sales of securities. The Fund may purchase and dispose
of U.S. Government securities before the issuance thereof. The Fund may also
purchase U.S. Government securities on a delayed delivery basis. The settlement
dates of these transactions shall be determined by the mutual agreement of the
parties.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money in amounts up to one-third of the value of its total assets, including the
amounts borrowed.
The Fund will not borrow money, except as a temporary measure for
extraordinary or emergency purposes, and then (a) only in amounts not in excess
of 5% of the value of its total assets or (b) in an amount up to one-third of
the value of its total assets, including the amount borrowed, in order to meet
redemption requests without immediately selling any portfolio securities (any
such borrowings under this section will not be collateralized).
PLEDGING ASSETS
The Fund will not pledge securities.
LENDING CASH OR SECURITIES
The Fund will not make loans to other persons; provided, however, that the
purchase or holding of money market instruments, to include repurchase
agreements and variable amount demand master notes, in accordance with the
Fund's investment objective and policies, shall not constitute the making of a
loan.
INVESTING IN COMMODITIES
The Fund will not invest in commodities or commodity contracts.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, except that the Fund may purchase
money market instruments issued by companies which invest in real estate or
interests therein.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by others.
ACQUIRING SECURITIES
The Fund will not acquire voting securities except as part of a merger,
consolidation, reorganization, or acquisition of assets.
CONCENTRATION OF INVESTMENTS
The Fund will generally invest in excess of 25% of the value of its assets
in commercial paper issued by finance companies. Whenever deemed appropriate to
its investment objective, the Fund may invest in other particular industries,
which would result in up to 25% of its net assets taken at market value being
invested in such industry. Investing in bank time and demand deposits, such as
certificates of deposit, U.S. Treasury bills, or securities issued or guaranteed
by the U.S. government, its agencies, or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements for
government securities, shall not be considered investments in any one industry
DIVERSIFICATION OF INVESTMENTS
The Fund will not invest more than 5% of its assets in the securities of
any one issuer (except cash or cash items, repurchase agreements and securities
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities).
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not invest in securities issued by any other investment company.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
The above limitations cannot be changed unless authorized by the "vote of a
majority of its outstanding voting securities" as defined by the Investment
Company Act. The following investment limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including certain restricted securities not determined to be
liquid under criteria established by the Trustees, non-negotiable time deposits,
and repurchase agreements providing for settlement in more than seven days after
notice.
INVESTING IN OPTIONS
The Fund will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above 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." Except with
respect to borrowing money, if a percentage limitation is adhered to at the time
of investment, a later increase or decrease in percentage resulting from any
change in value or net assets will not result in a violation of such limitation.
The Fund did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present intent to
do so during the coming fiscal year.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. The Fund will also determine the effective maturity of its investments,
as well as its ability to consider a security as having received the requisite
short-term ratings by nationally recognized rating services, according to Rule
2a-7. The Fund may change these operational policies to reflect changes in the
laws and regulations without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7 (the
"Rule") promulgated by the Securities and Exchange Commission under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective. The
procedures include monitoring the relationship between the amortized cost value
per share and the net asset value per share based upon available indications of
market value. The Trustees will decide what, if any, steps should be taken if
there is a difference of more than 0.5 of 1% between the two values. The
Trustees will take any steps they consider appropriate (such as redemption in
kind or shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Fund
values foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
these values and exchange rates may occur between the times at which they are
determined and the closing of the NYSE. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board, although the actual
calculation may be done by others.
HOW IS THE FUND SOLD?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.), located at Federated Investors Tower, 1001 Liberty Avenue,
Pittsburgh, PA 15222-3779, offers Shares on a continuous, best-efforts basis.
SHAREHOLDER SERVICES
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.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the
Distributor and/or Federated Shareholder Services Company (but not out of Fund
assets). The Distributor and/or Federated Shareholder Services Company may be
reimbursed by the Adviser or its affiliates.
Investment professionals receive such fees for providing
distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
SUBACCOUNTING SERVICES
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.
REDEMPTION IN KIND
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
Investment Company Act of 1940, 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.
MASSACHUSETTS PARTNERSHIP LAW
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.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections
and other matters submitted to shareholders for vote. All Shares of the Fund
have equal voting rights.
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 January 6, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Saxon and Co., Lester,
Pennsylvania owned approximately 91,060,646 shares (19.55%) and Union Planters
National Bank, Memphis Tennessee owned approximately 30,255,863 shares (6.49%)..
TAX INFORMATION
FEDERAL INCOME TAX
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.
WHO MANAGES AND PROVIDES SERVICES TO THE FUND?
BOARD OF TRUSTEES
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, birthdate, 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 56 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of January 6, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person
as defined in the Investment Company Act of 1940. The following symbol (#)
denotes a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTHDATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST AND
POSITION WITH TRUST FOR PAST 5 YEARS FROM TRUST FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and Director or $0 $0 for the
Birthdate: July 28, 1924 Trustee of the Federated Fund Complex. Trust and
Federated Investors Chairman and Director, Federated 54 other
Tower Investors, Inc.; Chairman and Trustee, investment
1001 Liberty Avenue Federated Advisers, Federated Management, companies
Pittsburgh, PA and Federated Research; Chairman and in the Fund
Chairman and Trustee Director, Federated Research Corp., and Complex
Federated Global Research Corp.; Chairman,
Passport Research, Ltd.
-------------------------
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $1,354.24 $113,860.22 for
Birthdate: February 3, Complex; Director, Member of Executive the
1934 Committee, Children's Hospital of Trust and
15 Old Timber Trail Pittsburgh; formerly: Senior Partner, 54 other
Pittsburgh, PA Ernst & Young LLP; Director, MED 3000 investment
TRUSTEE Group, Inc.; Director, Member of Executive companies
Committee, University of Pittsburgh. in the Fund
Complex
-------------------------
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $1,489.89 $125,264.48 for
Birthdate: June 23, 1937 Complex; President, Investment Properties the
Wood/IPC Commercial Corporation; Senior Vice President, Trust and
Dept. John R. Wood and Associates, Inc., 54 other
John R. Wood Realtors; Partner or Trustee in private investment
Associates, Inc. real estate ventures in Southwest Florida; companies
Realtors formerly: President, Naples Property in the Fund
3255 Tamiami Trial Management, Inc. and Northgate Village Complex
North Naples, FL Development Corporation.
TRUSTEE
-------------------------
-------------------------
WILLIAM J. COPELAND Director or Trustee of the Federated Fund $1,489.89 $125,264.48 for
Birthdate: July 4, 1918 Complex; Director and Member of the the
One PNC Plaza-23rd Floor Executive Committee, Michael Baker, Inc.; Trust and
Pittsburgh, PA 54 other
TRUSTEE Previous Positions: Vice Chairman and investment
Director, PNC Bank, N.A., and PNC Bank companies
Corp.; Director, Ryan Homes, Inc. in the Fund
Complex
Retired: Director, United Refinery;
Director, Forbes Fund; Chairman,
Pittsburgh Foundation; Chairman,
Pittsburgh Civic Light Opera.
-------------------------
JOHN F. CUNNINGHAM Director or Trustee of some of the $ $0 for the
Birthdate: March 5, 1943 Federated Funds; Chairman, President and Trust and
353 El Brillo Way Chief Executive Officer, Cunningham & Co., 26 other
Palm Beach, FL Inc. ; Trustee Associate, Boston College; investment
TRUSTEE Director, EMC Corporation; formerly: companies
Director, Redgate Communications. in the Fund
Complex
Previous Positions: Chairman of the Board
and Chief Executive Officer, Computer
Consoles, Inc.; President and Chief
Operating Officer, Wang Laboratories;
Director, First National Bank of Boston;
Director, Apollo Computer, Inc.
-------------------------
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $1,354.24 $113860.22 for
Birthdate: October 11, Complex; Professor of Medicine, University the
1932 of Pittsburgh; Medical Director, Trust and
3471 Fifth Avenue University of Pittsburgh Medical Center - 54 other
Suite 1111 Downtown; Hematologist, Oncologist, and investment
Pittsburgh, PA Internist, University of Pittsburgh companies
TRUSTEE Medical Center; Member, National Board of in the Fund
Trustees, Leukemia Society of America. Complex
-------------------------
EDWARD L. FLAHERTY, Director or Trustee of the Federated Fund $1,489.89 $125,264.48 for
JR., ESQ. # Complex; Attorney, of Counsel, Miller, the
Birthdate: June 18, 1924 Ament, Henny & Kochuba; Director Emeritus, Trust and
Miller, Ament, Henny & Eat'N Park Restaurants, Inc.; formerly: 54 other
Kochuba Counsel, Horizon Financial, F.A., Western investment
205 Ross Street Region; Partner, Meyer and Flaherty. companies
Pittsburgh, PA in the Fund
TRUSTEE Complex
-------------------------
PETER E. MADDEN Director or Trustee of the Federated Fund $1,354.24 $113,860.22 for
Birthdate: March 16, Complex; formerly: Representative, the
1942 Commonwealth of Massachusetts General Trust and
One Royal Palm Way Court; President, State Street Bank and 54 other
100 Royal Palm Way Trust Company and State Street investment
Palm Beach, FL Corporation. companies
TRUSTEE in the Fund
Previous Positions: Director, VISA USA and Complex
VISA International; Chairman and Director,
Massachusetts Bankers Association;
Director, Depository Trust Corporation.
-------------------------
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $1,354.24 $113,860.22 for
J.D., S.J.D. Complex; President, Law Professor, the
Birthdate: December 20, Duquesne University; Consulting Partner, Trust and
1932 Mollica & Murray. 54 other
President, Duquesne investment
University Previous Positions: Dean and Professor of companies
Pittsburgh, PA Law, University of Pittsburgh School of in the Fund
TRUSTEE Law; Dean and Professor of Law, Villanova Complex
University School of Law.
-------------------------
WESLEY W. POSVAR Director or Trustee of the Federated Fund $1,354.24 $113,860.22 for
Birthdate: September Complex; President, World Society of the
14, 1925 Ekistics (metropolitan planning), Athens; Trust and
1202 Cathedral of Professor, International Politics; 54 other
Learning Management Consultant; Trustee, Carnegie investment
University of Pittsburgh Endowment for International Peace, RAND companies
Pittsburgh, PA Corporation, Online Computer Library in the Fund
TRUSTEE Center, Inc., National Defense University Complex
and U.S. Space Foundation; President
Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory
Council for Environmental Policy and
Technology, Federal Emergency Management
Advisory Board; Trustee Czech Management
Center, Prague.
Previous Positions: Professor, United
States Military Academy; Professor, United
States Air Force Academy.
-------------------------
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $1,354.24 $113,860.22 for
Birthdate: June 21, 1935 Complex; Public the
4905 Bayard Street Relations/Marketing/Conference Planning. Trust and
Pittsburgh, PA 54 other
TRUSTEE Previous Positions: National Spokesperson, investment
Aluminum Company of America; business companies
owner. in the Fund
Complex
-------------------------
GLEN R. JOHNSON Trustee, Federated Investors, Inc.; staff $0 $0 for the
Birthdate: May 2, 1929 member, Federated Securities Corp. Trust and
Federated Investors 8 other
Tower investment
1001 Liberty Avenue companies
Pittsburgh, PA in the Fund
PRESIDENT Complex
-------------------------
J. CHRISTOPHER DONAHUE+ President or Executive Vice President of $0 $0 for the
Birthdate: April 11, the Federated Fund Complex; Director or Trust and
1949 Trustee of some of the Funds in the 16 other
Federated Investors Federated Fund Complex; President and investment
Tower Director, Federated Investors, Inc.; companies
1001 Liberty Avenue President and Trustee, Federated Advisers, in the Fund
Pittsburgh, PA Federated Management, and Federated Complex
EXECUTIVE VICE PRESIDENT Research; President and Director,
Federated Research Corp. and Federated
Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.
-------------------------
<PAGE>
EDWARD C. GONZALES Trustee or Director of some of the Funds $0 $0 for the
Birthdate: October 22, in the Federated Fund Complex; President, Trust and
1930 Executive Vice President and Treasurer of 1 other
Federated Investors some of the Funds in the Federated Fund investment
Tower Complex; Vice Chairman, Federated companies
1001 Liberty Avenue Investors, Inc.; Vice President, Federated in the Fund
Pittsburgh, PA Advisers, Federated Management, Federated Complex
EXECUTIVE VICE PRESIDENT Research, Federated Research Corp.,
Federated Global Research Corp. and
Passport Research, Ltd.; Executive Vice
President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
-------------------------
JOHN W. MCGONIGLE Executive Vice President and Secretary of $0 $0 for the
Birthdate: October 26, the Federated Fund Complex; Executive Vice Trust and
1938 President, Secretary, and Director, 54 other
Federated Investors Federated Investors, Inc.; Trustee, investment
Tower Federated Advisers, Federated Management, companies
1001 Liberty Avenue and Federated Research; Director, in the Fund
Pittsburgh, PA Federated Research Corp. and Federated Complex
EXECUTIVE VICE Global Research Corp.; Director, Federated
PRESIDENT AND SECRETARY Services Company; Director, Federated
Securities Corp.
-------------------------
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; $0 $0 for the
Birthdate: June 17, Vice President - Funds Financial Services Trust and
1954 Division, Federated Investors, Inc.; 54 other
Federated Investors Formerly: various management positions investment
Tower within Funds Financial Services Division companies
1001 Liberty Avenue of Federated Investors, Inc. in the Fund
Pittsburgh, PA Complex
TREASURER
-------------------------
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birthdate: May 17, 1923 Funds in the Federated Fund Complex; Trust and
Federated Investors Director or Trustee of some of the Funds 6 other
Tower in the Federated Fund Complex; Executive investment
1001 Liberty Avenue Vice President, Federated Investors, Inc.; companies
Pittsburgh, PA Chairman and Director, Federated in the Fund
VICE PRESIDENT Securities Corp. Complex
-------------------------
-------------------------
Deborah A. Cunningham Deborah A. Cunningham is Vice President of $0 $0 for the
Birthdate: September the Trust. Ms. Cunningham joined Federated Trust and
15, 1959 Investors in 1981 and has been A SENIOR 6 other
---------
Federated Investors PORTFOLIO MANAGER AND A Senior Vice investment
-----------------------
Tower President of the Fund's investment adviser companies
1001 Liberty Avenue since 1997. Ms. Cunningham served as A in the Fund
--
Pittsburgh, PA PORTFOLIO MANAGER AND a Vice President of Complex
---------------------
VICE PRESIDENT the investment adviser from 1993 until
1996. ^ Ms. Cunningham is a Chartered
Financial Analyst and received her
M.S.B.A. in Finance from Robert Morris
College.
</TABLE>
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Fund.
INVESTMENT ADVISER
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.
The adviser must waive the portion of its advisory fee that increases the
Fund's aggregate annual operating expenses above 0.40% of its average daily net
assets. The Fund's operating expenses include the advisory fee but exclude
interest, taxes, brokerage commissions, expenses of registering the Fund and its
shares under federal and state laws, expenses of withholding taxes, and
extraordinary expenses.
OTHER RELATED SERVICES
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.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at a
favorable price. The Adviser will generally use those who are recognized dealers
in specific portfolio instruments, except when a better price and execution of
the order can be obtained elsewhere. The Adviser may select brokers and dealers
based on whether they also offer research services (as described below). 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.
RESEARCH SERVICES
Research services may include advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry studies;
receipt of quotations for portfolio evaluations; and similar services. Research
services may be used by the Adviser or by affiliates of Federated in advising
other accounts. To the extent that receipt of these services may replace
services for which the Adviser or its affiliates might otherwise have paid, it
would tend to reduce their expenses. The Adviser and its affiliates exercise
reasonable business judgment in selecting those brokers who offer brokerage and
research services to execute securities transactions. They determine in good
faith that commissions charged by such persons are reasonable in relationship to
the value of the brokerage and research services provided.
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.
ADMINISTRATOR
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 ADMINISTRATIVE AVERAGE AGGREGATE DAILY NET ASSETS OF THE FEDERATED
FEE FUNDS
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. 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.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian
for the securities and cash of the Fund. Foreign instruments purchased by the
Fund are held by
foreign banks participating in a network coordinated by State Street Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
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.
INDEPENDENT AUDITORS
DELOITTE & TOUCHE LLP IS THE INDEPENDENT AUDITORS FOR THE FUND.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED
<TABLE>
<CAPTION>
- -------------------------------- --------------- ---------- --------------
<S> <C> <C> <C>
NOVEMBER 30, 1998 CURRENT YEAR PRIOR YEAR PRIOR YEAR
Advisory Fee Earned $2,105,177 $2,332,976 $2,804,812
- ---------------------------------
Advisory Fee Reduction $655,273 $715,043 $876,351
- ---------------------------------
Brokerage Commissions $0
- ---------------------------------
Administrative Fee $396,826 $440,349 $530,087
- ---------------------------------
Shareholder Services Fee $263,147
</TABLE>
- ---------------------------------
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by Shareholders who
use the transfer agent's subaccounting facilities.
HOW DOES THE FUND MEASURE PERFORMANCE?
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.
Unless otherwise stated, any quoted Share performance reflects the effect
of non-recurring charges, such as maximum sales charges, which, if excluded,
would increase the total return and yield. 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.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-, five- and ten-year periods ended November
30, 1998.
Yield and Effective Yield given for the 7-day period ended November 30, 1998.
7-DAY PERIOD 1 YEAR 5 YEARS 10 YEARS
Total Return 5.33 5.06 5.54
Yield 4.93
Effective Yield 5.05
TOTAL RETURN
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.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated by: determining
the net change in the value of a hypothetical account with a balance of one
Share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional Shares purchased with
dividends earned from the original one Share and all dividends declared on the
original and any purchased Shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. The effective yield is calculated by compounding the unannualized
base-period return by: adding 1 to the base-period return, raising the sum to
the 365/7th power: and subtracting 1 from the result.
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.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the
Investment Company Institute.
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 fund categories based on total return, which assumes
the reinvestment of all income dividends and capital gains distributions, if
any.
IBC/DONOGHUE'S MONEY FUND REPORT
Publishes annualized yields of money market funds weekly. Donoghue's Money
Market Insight publication reports monthly and 12-month-to-date investment
results for the same money funds.
MONEY
A monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
WHO IS FEDERATED INVESTORS, INC.?
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.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 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.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 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.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9
money market funds and 15 bond funds with assets approximating $22.8 billion and
$7.1 billion, respectively. Federated's corporate bond decision making--based on
intensive, diligent credit analysis--is backed by over 26 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.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated manages 9
mortgage-backed, 5 government/ agency and 19 government money market mutual
funds, with assets approximating $5.3 billion, $1.8 billion and $41.6 billion,
respectively. Federated trades approximately $425 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 $43.2 billion in government funds within
these maturity ranges.
MONEY MARKET FUNDS
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,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, 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.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $5 trillion to the more than 7,300 funds
available, according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety
of investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 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.
BANK MARKETING
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.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide--we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country--supported by more wholesalers than any other
mutual fund distributor. Federated's service to financial professionals and
institutions has earned it high ratings in several surveys performed by DALBAR,
Inc. DALBAR is recognized as the industry benchmark for service quality
measurement. The marketing effort to these firms is headed by James F. Getz,
President, Broker/Dealer Sales Division, Federated Securities Corp.
<PAGE>
ADDRESSES
FEDERATED MASTER TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Research
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA
02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA
02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street
Boston, MA
02110-1617
Federated Master Trust
A money market mutual fund seeking current income consistent with stability of
principal by investing in a portfolio of money market securities maturing in one
year or less.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Risk/Return Summary 2
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 6
What are the Principal Securities in Which
the Fund Invests? 6
What are the Specific Risks of Investing in the Fund? 7
What do Shares Cost? 7
How is the Fund Sold? 8
How to Purchase Shares 8
How to Redeem Shares 9
Account and Share Information 11
Who Manages the Fund? 12
Financial Information 13
Independent Auditors' Report 23
</TABLE>
JANUARY 31, 1999
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is current income consistent with
stability of principal. 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.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in a portfolio of high quality fixed income securities maturing
in one year or less. The dollar-weighted average maturity of the Fund's
portfolio will be 90 days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund seeks to maintain a stable net asset value, it is possible to
lose money investing in the Fund. 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.
Risk/Return Bar Chart and Table
The bar chart shows the variability of the Fund's actual total returns on a
calendar year end basis.
The Fund's Shares are not sold subject to a sales charge (load). Hence, the
total returns displayed above are based upon the net asset value.
The Fund's 7-Day Net Yield as of 12/31/981 was 4.85%.
Within the period shown in the chart, the Fund's highest quarterly return was
2.36% (quarter ended June 30, 1989). Its lowest quarterly return was 0.70%
(quarters ended June 30 and September 30, 1993).
Average Annual Total Return
The following table represents the Fund's Average Annual Total Return through
12/31/98.
<TABLE>
<CAPTION>
Calendar Period Fund
<S> <C>
1 Year 5.28%
5 Years 5.09%
10 Years 5.51%
</TABLE>
1 Investors may call the Fund to acquire the current 7-Day Net Yield by
calling 1-800-341-7400.
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 rewards.
What are the Fund's Fees and Expenses?
FEDERATED MASTER TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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 None
or redemption proceeds, as applicable)
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions) None
(as a percentage of offering price)
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
Annual Fund Operating Expenses
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 0.25%
(2)
Other Expenses 0.13%
Total Annual Fund Operating Expenses ( 0.78%
before waivers)Before Waivers)1
Waiver of Fund Expenses 0.33%
Total Actual Annual Fund Operating Expenses (after waivers) 0.45%
</TABLE>
1 Under the investment advisory contract, the adviser will waive the amount,
limited to the amount of the management fee, by which the Fund's aggregate
annual operating expenses, including the management fee but excluding
interest, taxes, brokerage commissions, expenses of registering and
qualifying the Fund and its shares under federal and state laws and
regulations, expenses of witholding taxes, and extraordinary expenses, exceed
0.45% of its average daily net assets. As a result, amounts actually incurred
by the Fund for Management fee, Shareholder Services fees, and/or Other
expenses may be less than the maximum amounts shown in this table.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund 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 operating expenses are before 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 3 Years 5 Years 10 Years
$79 $246 $428 $954
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high quality fixed income securities maturing
in one year or less. The dollar-weighted average maturity of the Fund's
portfolio will be 90 days or less.
The adviser performs a fundamental credit analysis to develop an approved list
of issuers and securities that meet the adviser's minimum credit standards. The
adviser targets a dollar-weighted average portfolio maturity range for the Fund
based upon its interest rate outlook. The adviser formulates its interest rate
outlook by analyzing a variety of factors, such as:
. current U.S. economic activity and the outlook for future activity,
. current short-term interest rates, and
. recent actions by the Federal Reserve Board regarding short-term interest
rates and market expectations regarding future actions.
The adviser generally shortens the portfolio's dollar- weighted average maturity
when it expects interest rates to rise and extends the maturity when it expects
interest rates to fall. The adviser selects securities from the approved list of
securities used to lengthen or shorten the portfolio's dollar-weighted average
maturity by comparing the returns currently offered by different investments to
their historical and expected returns.
INDUSTRY CONCENTRATION
The Fund may invest 25% or more of its assets in commercial paper issued by
finance companies.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
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.
The following describes the principal types of fixed income securities in
which the Fund invests.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of nine months or
less. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of debt obligations. Most asset
backed securities involve consumer or commercial debts with maturities of less
than ten years. However, almost any type of fixed income assets (including other
fixed income securities) may be used to create an asset backed security. The
simplest form of asset backed securities are pass-through certificates. An
issuer of pass- through certificates gathers payments from an underlying pool of
obligations. Then, the issuer deducts its fees and expenses and passes the
balance of the payments onto the certificate holders. Asset backed securities
may also take the form of commercial paper or notes.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security after the issuer defaults. In some cases
the company providing credit enhancement makes all payments directly to the
security holders and receives reimbursement from the issuer. Normally, the
credit enhancer has greater financial resources and liquidity than the issuer.
For this reason, the Adviser may evaluate the credit risk of a fixed income
security based solely upon its credit enhancement.
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security.
Following a default, these assets may be sold and the proceeds paid to
security's holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
Repurchase Agreements
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 for the transaction.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in the highest short-term
rating category by one or more nationally recognized rating services or be of
comparable quality to securities having such ratings. Nationally recognized
ratings services include Duff & Phelps, Fitch IBCA, Moody's, Standard & Poors,
and Thompson's Bankwatch.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may effect an investment in the Fund, the
principal risks of investing in a corporate money market fund are described
below.
MARKET RISK
Prices of fixed income securities rise and fall in response to interest rate
changes for similar securities. Generally, when interest rates rise, prices of
fixed income securities fall.
Interest rate changes have a greater affect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISK
Credit risk is the possibility that an issuer will default (fails to repay
interest and principal when due). If an issuer defaults, the Fund may lose
money. Money market funds try to minimize this risk by purchasing higher quality
securities.
Many fixed income securities receive credit ratings from nationally recognized
ratings services. Fixed income securities receive different credit ratings
depending on the rating company's assessment of the likelihood of default by the
issuer. The lower the credit rating, the greater the credit risk.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities issued
or credit enhanced by companies in similar businesses, or with other similar
characteristics. As a result, the Fund will be more susceptible to any economic,
business, political, or other developments which generally affect these issuers.
What do Shares Cost?
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, 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 12:00
noon and 3:00 p.m. (Eastern time) and as of the end of regular trading (normally
4:00 p.m. Eastern time) each day the NYSE is open.
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 minimum 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.
How is the Fund Sold?
The Fund's Distributor markets the Shares described in this prospectus to
institutions acting in an agency or fiduciary capacity 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 Investors, Inc. (Federated).
How to Purchase Shares
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.
THROUGH AN INVESTMENT PROFESSIONAL
. Establish an account with the investment professional; and
. Submit your purchase order to the investment professional before 3:00 p.m.
Eastern time.
. You will receive that day's dividend if the investment professional forwards
the order to the Fund and the Fund receives payment by 3:00 p.m. Eastern
time
. You will become the owner of Shares and receive dividends when the Fund
receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
. Establish your account with the Fund by submitting a completed New Account
Form; and
. Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares 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 the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
By Wire
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.
By Check
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 when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY AUTOMATIC INVESTMENTS
You may establish an account with your financial institution to automatically
purchase Shares on pre- determined dates or when your bank account reaches a
certain level. Under this program, participating financial institutions are
responsible for prompt transmission of orders and may charge you for this
service. You should read this prospectus along with your financial institution's
agreement or materials describing this service.
BY AUTOMATED CLEARINGHOUSE (ACH)
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.
How to Redeem Shares
You should redeem Shares:
. through an investment professional if you purchased Shares through an
investment professional; or
. directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time).
Investment professionals are responsible for promptly submitting redemption
requests and providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
By Telephone
You may redeem Shares by calling the Fund once you have completed the
appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time) your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time) your redemption will be wired to
you the following business day. You will receive that day's dividend.
By Mail
You may redeem Shares by mailing a written request to the Fund.
You will receive a redemption amount based on the NAV on the day the Fund
receives your written request in proper form. Dividends are paid up to and
including the day that a redemption request is processed.
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:
. Fund Name and Share Class, account number and account registration;
. amount to be redeemed; and
. signatures of all Shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees
Signatures must be guaranteed if:
. your redemption will be sent to an address other than the address of record;
. your redemption will be sent to an address of record that was changed within
the last thirty days; or
. a redemption is payable to someone other than the shareholder(s) of record.
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.
PAYMENT METHODS FOR REDEMPTIONS
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:
. an electronic transfer to your account at a financial institution that is an
ACH member; or
. wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
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.
LIMITATIONS ON REDEMPTION PROCEEDS
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:
. to allow your purchase to clear;
. during periods of market volatility; or
. when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
ADDITIONAL CONDITIONS
Telephone Transactions
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.
Share Certificates
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 or exchange request. For your
protection, send your certificates by registered or certified mail, but do not
endorse them.
Account and Share Information
CONFIRMATIONS AND ACCOUNT STATEMENTS
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.
DIVIDENDS AND CAPITAL GAINS
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.
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The 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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
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.
TAX INFORMATION
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 primarily dividends.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state, and local tax liability.
Who Manages the Fund?
The Board of Trustees governs the Fund. The Board selects and oversees the
Adviser, Federated Research. 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 175
mutual funds and separate accounts, which total approximately $111 billion in
assets as of December 31, 1998. 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.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.40% of the Fund's
average daily net assets. Under the investment advisory contract which is
subject to annual renewal by the Fund's Board of Trustees the Adviser will waive
the amount, limited to the amount of the advisory fee, by which the Fund's
aggregate annual operating expenses, including the investment advisory fee but
excluding interest, taxes, brokerage commissions, expenses of registering or
qualifying the Fund and its shares under federal and state laws and regulations,
expenses of withholding taxes, and extraordinary expenses exceed 0.45% of its
average daily net assets.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999. The Year 2000 problem may cause systems to process information incorrectly
and could disrupt businesses that rely on computers, like the Fund.
While it is impossible to determine in advance all of the risks to the Fund,
the Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to
fix any Year 2000 problems. In addition, they are working to gather information
from third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds
dealing with foreign service providers or investing in foreign securities, will
have difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Financial Information
FINANCIAL HIGHLIGHTS
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 all dividends and capital
gains.
This information has been audited by Deloitte & Touche, whose report, along with
the Fund's audited financial statements, is included in this Prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 23.
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from Investment Operations:
Net investment income 0.05 0.05 0.05 0.06 0.04
Less Distributions:
Distributions from net investment income (0.05) (0.05) (0.05) (0.06) (0.04)
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total Return1 5.33% 5.27% 5.18% 5.73% 3.78%
Ratios to Average Net Assets:
Expenses 0.45% 0.45% 0.45% 0.46% 0.46%
Net investment income 5.22% 5.16% 5.04% 5.59% 3.72%
Supplemental Data:
Net assets, end of period (000 omitted) $465,134 $494,399 $626,764 $729,144 $773,260
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Principal Value
Amount
<S> <C> <C>
CERTIFICATE OF DEPOSIT--3.8%
Banking--3.8%
$ 5,000,000 Bankers Trust Co., New York, 5.645%, 2/26/1999 $ 4,999,600
3,500,000 Credit Communal de Belgique, Brussles, 5.650%, 3/19/1999 3,498,241
1,000,000 KeyBank, N.A., 5.080%, 4/9/1999 1,000,000
8,000,000 Societe Generale, Paris, 5.706%, 4/16/1999 7,999,370
TOTAL CERTIFICATE OF DEPOSIT 17,497,211
COMMERCIAL PAPER--41.8%1
Banking--18.3%
5,000,000 Abbey National N.A. Corp., (Guaranteed by Abbey National Bank PLC, London), 5.003%,
5/4/1999 4,895,622
8,500,000 Aspen Funding Corp., (Insured by MBIA Insurance Corporation, Guaranteed by Deutsche
Bank, AG), 5.634%, 2/25/1999 8,388,827
21,000,000 Cregem North America, Inc., (Guaranteed by Credit Communal de Belgique, Brussles),
4.943% - 5.605%, 1/21/1999 - 2/23/1999 20,822,714
17,549,000 Fountain Square Commercial Funding Corp., (Fifth Third Bank, Cincinnati Support
Agreement), 5.119% - 5.450%, 1/8/1999 - 4/26/1999 17,300,393
7,000,000 Societe Generale North America, Inc., (Guaranteed by Societe Generale, Paris), 5.123%,
4/7/1999 6,876,775
22,000,000 UBS Finance (Delaware), Inc., (UBS AG LOC), 4.953% - 5.609%,
12/31/1998 - 3/29/1999 21,786,478
5,000,000 Wood Street Funding Corp., (PNC Bank, N.A. Support Agreement), 5.423%, 2/1/1999 4,953,931
TOTAL 85,024,740
Brokerage--2.1%
10,000,000 Salomon Smith Barney Holdings, Inc., 5.268%, 1/26/1999 9,919,111
Consumer Products--3.2%
15,000,000 Diageo Capital PLC, 5.600%, 12/11/1998 14,977,125
Finance - Automotive--3.2%
15,000,000 Ford Motor Credit Corp., 5.139%, 2/5/1999 14,861,125
Finance - Commercial--5.3%
3,000,000 Beta Finance, Inc., 5.106%, 4/15/1999 2,943,975
15,000,000 General Electric Capital Corp., 5.058% - 5.455%, 2/12/1999 - 3/17/1999 14,819,044
7,000,000 Sheffield Receivables Corp., 5.369%, 2/5/1999 6,932,240
TOTAL 24,695,259
Principal Value
Amount
COMMERCIAL PAPER--CONTINUED1
Finance - Retail--4.2%
$ 5,000,000 American Express Credit Corp., 5.023%, 4/12/1999 $ 4,910,167
15,000,000 Associates Corp. of North America, 4.867%, 4/19/1999 14,724,896
TOTAL 19,635,063
Insurance--5.1%
12,000,000 CXC, Inc., 5.161% - 5.502%, 12/7/1998 - 5/17/1999 11,764,854
12,000,000 Marsh & McLennan Cos., Inc., 5.128% - 5.637%, 3/29/1999 - 5/5/1999 11,748,796
TOTAL 23,513,650
Machinery, Equipment, Auto--0.4%
2,000,000 Eaton Corp., 5.597%, 5/11/1999 1,951,521
TOTAL COMMERCIAL PAPER 194,577,594
CORPORATE NOTES--5.3%
Finance - Automotive--2.7%
9,094,565 Ford Credit Auto Owner Trust 1998-C, Class A-2, 5.670%, 6/15/1999 9,094,565
3,308,881 MMCA Auto Owner Trust 1998-1, Class A-1, 5.621%, 8/16/1999 3,308,881
TOTAL 12,403,446
Finance - Commercial--1.1%
5,000,000 Beta Finance, Inc., 5.790%, 4/8/1999 4,999,825
Finance - Retail--1.0%
4,731,385 Greentree Recreational, Equipment & Consumer Trust 1998-C, Class A-1,
5.554%, 8/15/1999 4,731,385
Insurance--0.5%
683,520 ContiMortgage Home Equity Loan Trust 1998-2, Class A-1, (Guaranteed by MBIA Insurance
Corporation), 5.649%, 6/15/1999 683,520
2,000,000 WFS Financial 1998-C Owner Trust, Class A1, (Guaranteed by FSA),
5.395%, 11/20/1999 2,000,000
TOTAL 2,683,520
TOTAL CORPORATE NOTES 24,818,176
LOAN PARTICIPATION--2.6%
Electrical Equipment--0.7%
3,100,000 Mt. Vernon Phenol Plant Partnership, (Guaranteed by General Electric Co.),
5.370%, 5/17/1999 3,100,000
Finance - Automotive--1.1%
5,000,000 General Motors Acceptance Corp., Mortgage of PA, (Guaranteed by General Motors
Acceptance Corp.), 5.320%, 12/1/1998 5,000,000
Finance - Equipment--0.8%
4,000,000 Pitney Bowes Credit Corp., 5.324%, 12/10/1998 3,994,700
TOTAL LOAN PARTICIPATION 12,094,700
Principal Value
Amount
or Shares
NOTES - VARIABLE--24.2%3
Banking--14.4%
$ 10,000,000 Bankers Trust Co., New York, 4.920%, 12/1/1998 $ 9,996,538
10,000,000 Barclays Bank PLC, London, 5.320%, 12/1/1998 10,000,000
665,000 Dave White Chevrolet, Inc., Series 1996, (Huntington National Bank, Columbus, OH LOC),
5.140%, 12/3/1998 665,000
25,000,000 2Liquid Asset Backed Securities Trust, Series 1996-3, (Westdeutsche Landesbank
Girozentrale Swap Agreement), 5.429%, 12/15/1998 25,000,000
11,852,138 2Rabobank Optional Redemption Trust, Series 1997-101, 5.343%, 2/15/1999 11,852,138
8,000,000 Societe Generale, Paris, 4.923%, 12/1/1998 7,996,347
1,525,000 White Brothers Properties, Series 1996, (Huntington National Bank, Columbus, OH LOC),
5.140%, 12/3/1998 1,525,000
TOTAL 67,035,023
Insurance--9.8%
10,000,000 General American Life Insurance Co., 5.250%, 12/21/1998 10,000,000
11,338,777 2Liquid Asset Backed Securities Trust, Series 1997-3 Senior Notes, (Guaranteed by 11,338,777
AMBAC), 5.408%, 12/28/1998
24,000,000 Peoples Security Life Insurance Company, 5.660%, 12/1/1998 24,000,000
TOTAL 45,338,777
TOTAL NOTES - VARIABLE 112,373,800
REPURCHASE AGREEMENTS--22.1%4
35,000,000 ABN AMRO Chicago Corp., 5.500%, dated 11/30/1998, due 12/1/1998 35,000,000
10,000,000 J.P. Morgan & Co., Inc., 5.500%, dated 11/30/1998, due 12/1/1998 10,000,000
20,000,000 Nationsbanc Montgomery Securities, Inc., 5.500%, dated 11/30/1998, due 12/1/1998 20,000,000
32,700,000 Societe Generale, New York, 5.330%, dated 11/30/1998, due 12/1/1998 32,700,000
5,000,000 Warburg Dillon Reed LLC, 5.350%, dated 11/30/1998, due 12/1/1998 5,000,000
TOTAL REPURCHASE AGREEMENTS 102,700,000
TOTAL INVESTMENTS (AT AMORTIZED COST)5 $ 464,061,481
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. As of November 30, 1998, these securities
amounted to $48,190,915 which represents 10.4% of net assets.
3 Floating rate note with current rate and next reset date shown.
4 The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($465,133,895) at November 30, 1998.
The following acronyms are used throughout this portfolio:
AMBAC --American Municipal Bond Assurance Corporation
FSA --Financial Security Assurance
LLC --Limited Liability Corporation
LOC --Letter of Credit
MBIA --Municipal Bond Investors Assurance
PLC --Public Limited Company
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
NOVEMBER 30, 1998
<TABLE>
<S> <C> <C>
Assets:
Investments in repurchase agreements $ 102,700,000
Investments in securities 361,361,481
Total investments in securities, at amortized cost and value $ 464,061,481
Income receivable 1,493,035
Receivable for shares sold 1,268,410
TOTAL ASSETS 466,822,926
Liabilities:
Payable to bank 24,559
Payable for shares redeemed 41,037
Income distribution payable 1,556,379
Accrued expenses 67,056
TOTAL LIABILITIES 1,689,031
Net Assets for 465,133,895 shares outstanding $ 465,133,895
Net Asset Value, Offering Price and Redemption Proceeds Per Share:
$465,133,895 / 465,133,895 shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED NOVEMBER 30, 1998
<TABLE>
<S> <C> <C> <C>
Investment Income:
Interest $ 29,786,581
Expenses:
Investment advisory fee $ 2,105,177
Administrative personnel and services fee 396,826
Custodian fees 45,299
Transfer and dividend disbursing agent fees and expenses 11,014
Directors'/Trustees' fees 12,684
Auditing fees 15,091
Legal fees 7,550
Portfolio accounting fees 95,264
Shareholder services fee 1,315,736
Share registration costs 30,176
Printing and postage 13,376
Insurance premiums 44,837
Miscellaneous 13,332
TOTAL EXPENSES 4,106,362
Waivers:
Waiver of investment advisory fee $ (655,273)
Waiver of shareholder services fee (1,052,589)
TOTAL WAIVERS (1,707,862)
Net expenses 2,398,500
Net investment income $ 27,388,081
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997
<S> <C> <C>
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 27,388,081 $ 30,087,046
Distributions to Shareholders:
Distributions from net investment income (27,388,081) (30,087,046)
Share Transactions:
Proceeds from sale of shares 2,348,710,920 2,432,924,857
Net asset value of shares issued to shareholders in payment of distributions 6,627,670 7,298,023
declared
Cost of shares redeemed (2,384,603,857) (2,572,588,103)
Change in net assets resulting from share transactions (29,265,267) (132,365,223)
Change in net assets (29,265,267) (132,365,223)
Net Assets:
Beginning of period 494,399,162 626,764,385
End of period $ 465,133,895 $ 494,399,162
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
NOVEMBER 30, 1998
ORGANIZATION
Federated Master Trust (the "Fund") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as an open-end management investment
company. The investment objective of the Fund is current income consistent with
stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
Investment Valuations
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
Repurchase Agreements
It is the policy of the Fund 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 Fund to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund'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 Fund could receive less than
the repurchase price on the sale of collateral securities.
Investment Income, Expenses and Distributions
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex-dividend
date.
Federal Taxes
It is the Fund's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
When-Issued and Delayed Delivery Transactions
The Fund may engage in when-issued or delayed delivery transactions. The Fund
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.
Restricted Securities
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Trustees. The Fund will not incur any registration costs upon such resales.
Restricted securities are valued at amortized cost in accordance with Rule 2a-7
under the Act.
Additional information on each restricted security held at November 30, 1998 is
as follows:
<TABLE>
<CAPTION>
Security Acquisition Date Acquisition Cost
<S> <C> <C>
Liquid Asset Backed Securities Trust, Series 1996-3 8/15/1996 $25,000,000
Liquid Asset Backed Securities Trust, Series 1997-3 6/27/1997 11,852,138
Rabobank Optional Redemption Trust, Series 197-101 4/17/1997 11,338,777
</TABLE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
Other
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
November 30, 1998, capital paid-in aggregated $465,133,895.Transactions in
shares were as follows:
<TABLE>
<CAPTION>
Year Ended November 30 1998 1997
<S> <C> <C>
Shares sold 2,348,710,920 2,432,924,857
Shares issued to shareholders in payment of distributions declared 6,627,670 7,298,023
Shares redeemed (2,384,603,857) (2,572,588,103)
NET CHANGE RESULTING FROM SHARE TRANSACTIONS (29,265,267) (132,365,223)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Investment Advisory Fee
Federated Research, the Fund's investment adviser (the "Adviser"), receives for
its services an annual investment advisory fee equal to 0.40% of the Fund's
average daily net assets. The Adviser will waive, to the extent of its advisory
fee, the amount, if any, by which the Fund's aggregate annual operating expenses
exceed 0.45% of average daily net assets of the Fund.
Administrative Fee
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund with administrative personnel and services. The fee
paid to FServ is based on the level of average aggregate daily net assets of all
funds advised by subsidiaries of Federated Investors, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
Shareholder Services Fee
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund or 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.
Transfer and Dividend Disbursing Agent Fees and Expenses
FServ, through its subsidiary, FSSC serves as transfer and dividend disbursing
agent for the Fund. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
Portfolio Accounting Fees
FServ, maintains the Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses
Interfund Transactions
During the period ended November 30, 1998 the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $127,805,997 and $32,750,498,
respectively.
General
Certain of the Officers and Trustees of the Fund are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FEDERATED MASTER TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Federated Master Trust as of November 30, 1998,
and the related statements of operations for the year then ended, the statement
of changes in net assets for each of the years ended November 30, 1998 and 1997,
and the financial highlights for the years in the five-year period ended
November 30, 1998. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
November 30, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Federated Master
Trust as of November 30, 1998, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
January 15, 1999
[FEDERATED LOGO]
Federated
Master Trust
JANUARY 31, 1999
A Statement of Additional Information (SAI) dated January 31, 1999 is
incorporated by reference into this prospectus. Additional information about the
Fund's investments is contained in the Fund's semi-annual reports to
shareholders as they become available.
To obtain the SAI and other information without charge, call your investment
professional or the Fund at 1-800-341-7400.You can obtain information about the
Fund (including the SAI) by visiting or writing the Public Reference Room of the
Securities and Exchange Commission in Washington, DC 20549-6009 or from the
Commission's Internet site at http:// www.sec.gov. You can call 1-800-SEC-0330
for information on the Public Reference Room's operations and copying charges.
[FEDERATED LOGO]
Federated Master Trust
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. 811-2784
Cusip 314214107
8010411A (1/99)
Federated is a registered mark
of Federated Investors, Inc.
1999 (C) Federated Investors, Inc.
[RECYCLED
LOGO]
