LIQUID CASH TRUST
PROSPECTUS
Liquid Cash Trust (the "Trust") is a no-load, open-end, non-diversified
management investment company (a mutual fund) investing exclusively in certain
securities which qualify as short-term liquid assets under Section 566.1(h) (12
C.F.R. sec. 566.1(h)) of the federal regulations applicable to federal savings
associations to provide stability of principal and current income consistent
with stability of principal. Pursuant to current interpretations by the Office
of the Comptroller of the Currency, the Trust will also serve as an appropriate
vehicle for a national bank as an investment for its own account.
The Trust's investors are limited to "depository institutions" as that term is
defined in Regulation D (12 C.F.R. Part 204) of the Board of Governors of the
Federal Reserve System.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference. The Trust has
also filed a Statement of Additional Information dated May 31, 1994, with the
Securities and Exchange Commission. The information contained in the Statement
of Additional Information is incorporated by reference into this prospectus. You
may request a copy of the Statement of Additional Information free of charge by
calling 1-800-235-4669. To obtain other information or to make inquiries about
the Trust, contact the Trust at the address listed in the back of this
prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1994
TABLE OF CONTENTS
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SUMMARY OF TRUST EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Concentration of Investments 4
Loans of Federal Funds 4
Repurchase Agreements 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Investment Risks 5
Investment Limitations 5
Regulatory Compliance 6
TRUST INFORMATION 6
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Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Other Payments to Financial
Institutions 7
Distribution of Trust Shares 7
Administration of the Trust 7
Administrative Services 7
Shareholder Services Plan 7
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Legal Counsel 8
Independent Auditor 8
NET ASSET VALUE 8
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INVESTING IN THE TRUST 8
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Share Purchases 8
By Wire 8
By Mail 8
Minimum Investment Required 9
What Shares Cost 9
Receipt of Orders 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING SHARES 10
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Telephone Redemption 10
Written Requests 10
Signatures 11
Receiving Payment 11
Accounts with Low Balances 11
Redemption in Kind 11
SHAREHOLDER INFORMATION 12
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Voting Rights 12
Massachusetts Partnership Law 12
TAX INFORMATION 12
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Federal Income Tax 12
Pennsylvania Corporate and
Personal Property Taxes 13
PERFORMANCE INFORMATION 13
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FINANCIAL STATEMENTS 14
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INDEPENDENT AUDITORS' REPORT 20
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ADDRESSES Inside Back Cover
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SUMMARY OF TRUST EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................ None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).............................. None
Redemption Fee (as a percentage of amount
redeemed, if applicable)........................................................... None
Exchange Fee......................................................................... None
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)..................................................... 0.04%
12b-1 Fee............................................................................ None
Total Other Expenses................................................................. 0.13%
Shareholder Servicing Fee(2)............................................ 0.00%
Total Trust Operating Expenses(3)............................................. 0.17%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.40%.
(2) The Trust has no present intention of paying or accruing the shareholder
servicing fee during the fiscal year ending March 31, 1995. If the Trust were
paying or accruing the shareholder servicing fee, the Trust would be able to pay
up to 0.25% of its average daily net assets for the shareholder servicing fee.
See "Trust Information."
(3) The total Trust operating expenses in the table above are based on expenses
expected during the fiscal year ending March 31, 1995. The total Trust operating
expenses were 0.16% for the fiscal year ended March 31, 1994 and were 0.55%
absent the voluntary waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE TRUST WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "TRUST INFORMATION." Wire-transferred redemptions of less than
$5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
------------------------------------------------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period............ $2 $5 $10 $22
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
LIQUID CASH TRUST
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 20.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
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1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
----- ----- ----- ----- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $ 1.00
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INCOME FROM INVESTMENT
OPERATIONS
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Net investment income 0.03 0.03 0.05 0.08 0.09 0.08 0.07 0.06 0.08 0.10
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LESS DISTRIBUTIONS
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Dividends to shareholders
from net investment income (0.03) (0.03) (0.05) (0.08) (0.09) (0.08) (0.07) (0.06) (0.08) (0.10)
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
NET ASSET VALUE, END OF
PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $ 1.00
----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
TOTAL RETURN* 3.09% 3.35% 5.26% 7.93% 9.26% 8.57% 6.98% 6.58% 8.21% 10.55%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.16% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.14% 0.10% 0.05%
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Net investment income 3.05% 3.33% 5.16% 7.62% 8.85% 8.17% 6.74% 6.36% 7.89% 9.54%
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Expense waiver/
reimbursement(a) 0.39% 0.35% 0.34% 0.34% 0.36% 0.31% 0.33% 0.31% 0.40% 0.45%
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SUPPLEMENTAL DATA
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Net assets, end of period
(000 omitted) 464,941 611,124 786,346 856,624 722,712 551,184 777,424 1,084,623 850,887 809,430
-----------------------------
</TABLE>
* Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 11, 1980. The Trust qualifies as a short-term liquid asset
pursuant to the regulations of the Office of Thrift Supervision. Since federal
funds are a permitted investment, shares of the Trust will be sold only to
"depository institutions" as that term is defined in Regulation D (12 C.F.R.
Part 204) of the Board of Governors of the Federal Reserve System, and the
portfolio of the Trust will be limited to those instruments which such
depository institutions may own directly. Shareholders of the Trust will not be
permitted to make third party payments from their accounts with the Trust. A
minimum initial investment of $25,000 over a 90-day period is required.
The Trust attempts to stabilize the value of a share at $1.00. Trust shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Trust is stability of principal and current
income consistent with stability of principal. The Trust pursues this investment
objective by investing in a portfolio of money market instruments maturing in
one year or less which qualify as short-term liquid assets under Section
566.1(h) (12 C.F.R. sec. 566.1(h)) of the Office of Thrift Supervision
Regulations ("Section 566.1(h)"). The Trust also complies with the requirements
of Circular 220, issued by the Office of the Comptroller of the Currency, to
provide national banks with an appropriate source of portfolio liquidity through
a mutual fund investment. The average maturity of money market instruments in
the Trust's portfolio, computed on a dollar weighted basis, will be 90 days or
less. While there is no assurance that the Trust will achieve its investment
objective, it will endeavor to do so by following the investment policies
described in this prospectus. The investment objective and the policies and
limitations described below cannot be changed without approval of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The Trust invests only in money market instruments which
qualify as short-term liquid assets under Section 566.1(h). These securities
currently include, but are not limited to:
- time deposits in a Federal Home Loan Bank;
- obligations of the United States;
- obligations of U.S. government agencies or instrumentalities such as:
Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Banks for Cooperatives, Farm
Credit Banks, Export-Import Bank of the United States, Commodity Credit
Corporation, Federal Financing Bank, Student Loan Marketing Association,
Federal Home Loan Mortgage Corporation, or National Credit Union
Administration;
- time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF") or the Savings Association
Insurance Fund ("SAIF"), including certificates of deposit issued by and
other time deposits in foreign branches of BIF-insured banks which, if
negotiable, mature in one year or less or if not negotiable, either
mature in 90 days or less or are withdrawable upon notice not exceeding
90 days;
- loans of federal funds and similar loans of unsecured day(s) funds,
maturing in six months or less, to BIF or SAIF-insured institutions which
are not subordinated to claims of the borrower's depositors; and
- general obligations (other than gold-related obligations), of any state,
territory, or possession of the United States, or their political
subdivisions, so long as they are either (1) rated in one of the four
highest grades by nationally recognized statistical rating organizations
("NRSROs") or (2) issued by a public housing agency and have the full
faith and credit of the United States. A full description of the rating
categories is included in the Appendix to the Statement of Additional
Information.
As an operating policy which may be changed without shareholder approval, the
Trust will continue to limit its portfolio, within the parameters of Section
566.1(h), to legal investments for federal credit unions as set forth in
Sections 107(7) and (8) of the Federal Credit Union Act and Part 703 of the
National Credit Union Administration regulations. The Trust will provide the
National Credit Union Administration and all federal credit union shareholders
with sixty (60) days' written notice should the Trust intend to change such
operating policy.
The Trust may also enter into repurchase agreements or reverse repurchase
agreements secured by those obligations of the U.S. government and bank
instruments which but for their maturities qualify as short-term liquid assets.
CONCENTRATION OF INVESTMENTS. The Trust will invest at least 25% of its total
assets in bank instruments such as time and demand deposits and certificates of
deposit, or instruments secured by these instruments such as repurchase
agreements. It may invest less than 25% when, in the opinion of the investment
adviser, it is advisable to maintain a temporary defensive posture.
LOANS OF FEDERAL FUNDS. Federal funds are funds held by a regional Federal
Reserve Bank for the account of a bank which is a member of that Federal Reserve
Bank. The member bank can lend federal funds to another member bank. These loans
are unsecured and are made at a negotiated interest rate for a negotiated time
period, generally overnight. Because reserves are not required to be maintained
on borrowed federal funds, member banks borrowing federal funds are willing to
pay interest rates which are generally higher than they pay on other deposits of
comparable size and maturity which are subject to reserve requirements. The
Trust sells its shares only to "depository institutions" as that term is defined
in Regulation D of the Board of Governors of the Federal Reserve System and
limits its portfolio only to instruments which "depository institutions" can
purchase directly. Therefore, the Trust can participate in the federal funds
market and in effect make loans of federal funds by instructing any willing
member bank at which the Trust maintains an account to loan federal funds on the
Trust's behalf. These transactions permit the Trust to obtain interest rates on
its assets which are comparable to those earned by member banks when they loan
federal funds. The Trust may engage in loans of federal funds and similar loans
of unsecured day(s) funds, maturing in six months or less, to BIF or
SAIF-insured institutions. As a matter of investment policy, which may be
changed without shareholder approval, the Trust will only lend federal funds to
financial institutions that the Trust's
adviser determines to be adequately or well capitalized. Financial institutions
are deemed to be adequately or well capitalized pursuant to guidelines
established by the Trustees.
REPURCHASE AGREEMENTS. The U.S. government securities in which the Trust invests
may be purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or certificates of deposit to the
Trust and agree at the time of sale to repurchase them at a mutually agreed upon
time and price. The Trust or its custodian will take possession of the
securities subject to repurchase agreements and these securities will be marked
to market daily. To the extent that the original seller does not repurchase the
securities from the Trust, the Trust could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting seller
filed for bankruptcy or became insolvent, disposition of such securities by the
Trust might be delayed pending court action. The Trust believes that under the
regular procedures normally in effect for custody of the Trust's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Trust and allow retention or disposition of such
securities. The Trust will only enter into repurchase agreements with banks and
other recognized financial institutions such as broker/dealers which are deemed
by the Trust's adviser to be creditworthy pursuant to guidelines established by
the Trustees.
RESTRICTED AND ILLIQUID SECURITIES. The Trust may invest up to 10% of its net
assets in illiquid securities, which may include restricted securities.
Restricted securities are any securities in which the Trust may otherwise invest
pursuant to its investment objective but which are subject to restriction on
resale under federal securities laws. To the extent these securities are deemed
to be illiquid, the Trust will limit its purchases, together with other
securities considered to be illiquid, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase short-term
U.S. government obligations on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Trust relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Trust to miss a price or yield considered to be advantageous.
INVESTMENT RISKS
Repurchase agreements with, loans of federal funds and other day(s) funds to,
and certain time deposits, such as savings accounts and certificates of deposit
over $100,000 of BIF or SAIF-insured institutions, and deposits in foreign
branches of domestic banks, are not insured by BIF or SAIF. The Trust does not
invest, however, in instruments issued by banks or savings associations unless
they have capital, surplus, and undivided profits of over $100,000,000 at the
time of investment or unless the principal amount of the instrument is insured
by BIF or SAIF and is determined by the Trust's adviser to be adequately or well
capitalized.
INVESTMENT LIMITATIONS
The Trust will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Trust sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Trust
may
borrow up to one-third of the value of its total assets and pledge up to
10% of the value of its assets to secure such borrowings; or
- invest more than 5% of its total assets in securities of issuers that
have records of less than three years of continuous operations.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Trust
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Trust will 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 NRSROs, according to Rule 2a-7. The Trust
may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.
TRUST INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. The Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research Corp., the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and supervision
for the Trust and is responsible for the purchase or sale of portfolio
instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Trust's adviser receives an annual investment advisory
fee equal to .40 of 1% of the Trust's average daily net assets. Under the
investment advisory contract, the adviser will reimburse the Trust the
amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including its advisory fee but
excluding interest, taxes, brokerage commissions, expenses of registering
and qualifying the Trust and its shares under federal and state laws,
expenses of withholding taxes, and extraordinary expenses, exceed .45 of 1%
of its average daily net assets. This voluntary reimbursement arrangement
may be terminated at any time by the Adviser in its sole discretion. The
adviser has also undertaken to reimburse the Trust for operating expenses
in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Research Corp., a Maryland corporation
organized May 23, 1958, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Federated Research Corp. and other subsidiaries of Federated Investors
serve as investment advisers to a number of investment companies and
private accounts. Certain other subsidiaries also provide administrative
services to a number of investment companies. Total assets under management
or administration by these and other subsidiaries of Federated Investors
are approximately $70 billion. Federated Investors, which was founded in
1956 as Federated Investors, Inc., develops and manages mutual funds
primarily for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk-averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
financial institutions may be compensated by the adviser or its affiliates
for the continuing investment of customers' assets in certain funds,
including the Trust, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be
made from the assets of the Trust or by the assessment of a sales charge on
shares.
DISTRIBUTION OF TRUST SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
------------------------------ ------------------------------------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Trust to obtain certain personal services
for shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform
shareholder services. Financial institutions will receive fees based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
Trust and Federated Shareholder Services.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Trust and
dividend disbursing agent for the Trust.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITOR. The independent auditor for the Trust is Deloitte & Touche,
Boston, Massachusetts.
NET ASSET VALUE
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The Trust attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Trust, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN THE TRUST
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SHARE PURCHASES
To purchase shares of the Trust, open an account by calling Federated Securities
Corp. Information needed to establish the account will be taken over the
telephone.
BY WIRE. To purchase shares of the Trust by Federal Reserve wire, call the Trust
before 3:00 p.m. (Eastern time) to place an order. The order is considered
received immediately. Payment by federal funds must be received before 3:00 p.m.
(Eastern time) that same day. Federal funds should be wired as follows: State
Street Bank and Trust Company, Boston, Massachusetts; Attention: EDGEWIRE; For
Credit to: Liquid Cash Trust; Fund Number (this number can be found on the
account statement or by contacting the Trust); Group Number or Order Number;
Nominee or Institution Name; and ABA Number 011000028. Shares cannot be
purchased on days on which the New York Stock Exchange is closed and on federal
holidays restricting wire transfers.
BY MAIL. To purchase shares of the Trust by mail, send a check made payable to
Liquid Cash Trust to Federated Services Company, c/o State Street Bank and Trust
Company, P.O. Box 8602, Boston, Massachusetts 02266-8602. An order by mail is
considered received after payment by check is converted by the transfer agent's
bank, State Street Bank, into federal funds. This is normally the next business
day after State Street Bank receives the check.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Trust is $25,000. However, an account may
be opened with a smaller amount as long as the $25,000 minimum is reached within
90 days. An institutional investor's minimum investment will be calculated by
combining all accounts it maintains with the Trust. Accounts established through
a non-affiliated bank or broker may be subject to a smaller minimum investment.
WHAT SHARES COST
Trust shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Trust.
The net asset value is determined at 2:00 p.m. (Boston time), 3:00 p.m. (Boston
time), and 4:00 p.m. (Boston time), Monday through Friday, except on: (i) days
on which there are not sufficient changes in the value of the Trust's portfolio
securities that its net asset value might be materially affected; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
RECEIPT OF ORDERS
Trust shares are sold on days on which the New York Stock Exchange is open.
Orders are considered received after payment by check is converted by State
Street Bank into federal funds (normally the next business day after receiving
the check). When payment is made with federal funds, the order is considered
received immediately.
The Trust reserves the right to reject any purchase request.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Trust unless cash
payments are requested by writing or calling Federated Securities Corp.
Dividends are compounded each business day. Compounding is accomplished by
adding the month-to-date accrued dividends to the current share balance when
calculating the daily dividend. Share purchase orders received before 3:00 p.m.
(Eastern time) earn dividends that day.
CAPITAL GAINS
Since the Trust's policy is, under normal circumstances, to hold portfolio
securities to maturity and to value portfolio securities at amortized cost, it
does not expect any capital gains or losses. If the Trust does experience gains,
however, it could result in an increase in dividends. Capital losses could
result in
a decrease in dividends. If for some extraordinary reason the Trust realizes net
long-term capital gains, it will distribute them at least once every 12 months.
REDEEMING SHARES
--------------------------------------------------------------------------------
The Trust redeems shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemption requests must be received in
proper form and can be made by telephone or in writing.
TELEPHONE REDEMPTION
Shareholders may redeem their shares by telephoning the Trust. All proceeds will
be wire transferred to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System. If at any time, the Trust shall
determine it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
A daily dividend will be paid on shares redeemed if the redemption request is
received after 2:00 p.m. (Eastern time). However, the proceeds are not wired
until the following business day. Redemption requests received before 2:00 p.m.
(Eastern time) will be paid the same day but will not be entitled to that day's
dividends.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Federated Securities Corp. Telephone redemption instructions may
be recorded. If reasonable procedures are not followed by the Trust, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption, such as written requests, should be considered.
WRITTEN REQUESTS
Trust shares may also be redeemed by sending a written request to the Trust.
Call the Trust for specific instructions before redeeming by letter. The
shareholder will be asked to provide in the request his name, the Trust name,
his account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by BIF;
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by SAIF; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed within one
business day, but in no event more than seven days, after receipt of a proper
written redemption request.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $25,000 due to
shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1% of
the Trust's net asset value, whichever is less, for any one shareholder within a
90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Trust will pay all or a portion of
the remainder of the redemption in portfolio instruments, valued in the same way
as the Trust determines net asset value. The portfolio instruments will be
selected in a manner that the Trustees deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
SHAREHOLDER INFORMATION
--------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Trust gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's
operation and for the election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
TAX INFORMATION
--------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares. The Trust will
provide detailed tax information for reporting purposes.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
- the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
- Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to
such taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
From time to time, the Trust advertises its yield and effective yield.
The yield of the Trust represents the annualized rate of income earned on an
investment in the Trust over a seven-day period without including dividends
earned on reinvested dividends. It is the annualized dividends earned during the
period on the investment, shown as a percentage of the investment. The effective
yield is calculated similarly to the yield, but, when annualized, the income
earned by an investment in the Trust is assumed to be reinvested daily. The
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Trust after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Trust may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
LIQUID CASH TRUST
PORTFOLIO OF INVESTMENTS
MARCH 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------------ -------------------------------------------------------------------------- ------------
<C> <C> <S> <C>
*REPURCHASE AGREEMENTS--99.9%
--------------------------------------------------------------------------------------------
$ 20,000,000 BT Securities Corp., 3.60%, dated 3/31/94, due 4/4/94 $ 20,000,000
--------------------------------------------------------------------------
400,000 BT Securities Corp., 3.50%, dated 3/31/94, due 4/1/94 400,000
--------------------------------------------------------------------------
13,100,000 BZW Securities, Inc., 3.57%, dated 3/31/94, due 4/4/94 13,100,000
--------------------------------------------------------------------------
20,000,000 Carroll McEntee & McGinley, Inc., 3.65%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
20,000,000 Deutsche Bank Government Securities, Inc., 3.62%, dated 3/31/94, due
4/4/94 20,000,000
--------------------------------------------------------------------------
10,000,000 Donaldson, Lufkin & Jenrette Securities Corp., 3.65%, dated 3/18/94, due
4/19/94 10,000,000
--------------------------------------------------------------------------
20,000,000 Fuji Government Securities, Inc., 3.62%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
10,000,000 ** Goldman, Sachs & Co., 3.80%, dated 3/4/94, due 6/2/94 10,000,000
--------------------------------------------------------------------------
11,000,000 ** Goldman, Sachs & Co., 3.72%, dated 3/30/94, due 5/27/94 11,000,000
--------------------------------------------------------------------------
10,000,000 Greenwich Capital Markets Inc., 3.70%, dated 3/31/94, due 4/4/94 10,000,000
--------------------------------------------------------------------------
8,000,000 ** Greenwich Capital Markets Inc., 3.19%, dated 1/28/94, due 4/28/94 8,000,000
--------------------------------------------------------------------------
20,000,000 Harris Trust & Savings Bank, 3.60%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
100,000,000 J.P. Morgan Securities, Inc., 3.60%, dated 3/31/94, due 4/4/94 100,000,000
--------------------------------------------------------------------------
30,000,000 Kidder, Peabody & Co., Inc., 3.62%, dated 3/31/94, due 4/4/94 30,000,000
--------------------------------------------------------------------------
20,000,000 Kidder, Peabody & Co., Inc., 3.58%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
20,000,000 Merrill Lynch & Co., Inc., 3.62%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
12,000,000 ** Morgan Stanley & Co., Inc., 3.81%, dated 3/31/94, due 6/29/94 12,000,000
--------------------------------------------------------------------------
20,000,000 NationsBank of Florida, 3.625%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
20,000,000 Nomura Securities International, Inc., 3.72%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
20,000,000 PaineWebber, Inc., 3.825%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
20,000,000 Sanwa-BGK Securities Co., 3.55%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
20,000,000 Smith Barney, Harris Upham & Co., Inc., 3.65%, dated 3/31/94, due 4/4/94 20,000,000
--------------------------------------------------------------------------
20,000,000 UBS Securities, Inc., 3.60%, dated 3/31/94, due 4/4/94 20,000,000
-------------------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST (NOTES 2A AND 2B) $464,500,000+
-------------------------------------------------------------------------- ------------
</TABLE>
* Repurchase agreements are fully collateralized by U.S. government and/or
agency obligations, based on market prices as the date of the portfolio.
These repurchase agreements participate in a joint account with other
Federated Funds.
** Although final maturity falls at or beyond seven days, a liquidity feature is
included in each transaction to permit the termination of the repurchase
agreement within seven days.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($464,940,539) at March 31, 1994.
(See Notes which are an integral part of the Financial Statements)
LIQUID CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
-------------------------------------------------------------------------------
Investments in repurchase agreements, at amortized cost (Notes 2A and 2B) $464,500,000
-------------------------------------------------------------------------------
Cash 604,253
-------------------------------------------------------------------------------
Receivable for Trust shares sold 301,923
-------------------------------------------------------------------------------
Interest receivable 136,899
------------------------------------------------------------------------------- ------------
Total assets 465,543,075
-------------------------------------------------------------------------------
LIABILITIES:
-------------------------------------------------------------------------------
Dividends payable $492,054
--------------------------------------------------------------------
Payable for Trust shares redeemed 24,301
--------------------------------------------------------------------
Accrued expenses and other liabilities 86,181
-------------------------------------------------------------------- --------
Total liabilities 602,536
------------------------------------------------------------------------------- ------------
NET ASSETS for 464,940,539 shares of beneficial interest outstanding $464,940,539
------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($464,940,539 / 464,940,539 shares of beneficial interest outstanding) $1.00
------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIQUID CASH TRUST
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1994
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
---------------------------------------------------------------------------------
Interest income (Note 2C) $19,109,027
---------------------------------------------------------------------------------
EXPENSES:
---------------------------------------------------------------------------------
Investment advisory fee (Note 4) $2,385,038
--------------------------------------------------------------------
Trustees' fees 18,872
--------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 485,302
--------------------------------------------------------------------
Custodian fees 217,916
--------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 24,219
--------------------------------------------------------------------
Trust share registration costs 25,066
--------------------------------------------------------------------
Legal fees 15,557
--------------------------------------------------------------------
Auditing fees 17,137
--------------------------------------------------------------------
Printing and postage 4,361
--------------------------------------------------------------------
Insurance premiums 14,772
--------------------------------------------------------------------
Taxes 2,004
--------------------------------------------------------------------
Miscellaneous 4,710
-------------------------------------------------------------------- ----------
Total expenses 3,214,954
--------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 2,293,761
-------------------------------------------------------------------- ----------
Net expenses 921,193
--------------------------------------------------------------------------------- -----------
Net investment income $18,187,834
--------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIQUID CASH TRUST
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
<S> <C> <C>
1994 1993
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS:
----------------------------------------------------------
OPERATIONS--
----------------------------------------------------------
Net investment income $ 18,187,834 $ 25,238,609
---------------------------------------------------------- --------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
----------------------------------------------------------
Dividends to shareholders from net investment income (18,187,834) (25,238,609)
---------------------------------------------------------- --------------- ---------------
TRUST SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
----------------------------------------------------------
Proceeds from sales of shares 6,185,652,929 7,535,813,596
----------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of dividends declared 11,070,167 13,916,103
----------------------------------------------------------
Cost of shares redeemed (6,342,906,192) (7,724,951,602)
---------------------------------------------------------- --------------- ---------------
Change in net assets from Trust share transactions (146,183,096) (175,221,903)
---------------------------------------------------------- --------------- ---------------
Change in net assets (146,183,096) (175,221,903)
----------------------------------------------------------
NET ASSETS:
----------------------------------------------------------
Beginning of period 611,123,635 786,345,538
---------------------------------------------------------- --------------- ---------------
End of period $ 464,940,539 $ 611,123,635
---------------------------------------------------------- --------------- ---------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIQUID CASH TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1994
--------------------------------------------------------------------------------
(1) ORGANIZATION
The Trust is registered under the Investment Company Act of 1940 (the "1940
Act") as amended, as a no-load, open-end, non-diversified management investment
company.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles
("GAAP").
A. INVESTMENT VALUATIONS--The Trust's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the 1940 Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Trust to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Trust to
monitor on a daily basis, the market value of each repurchase agreement's
underlying collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions such as brokers/dealers which are deemed by
the Trust's adviser to be creditworthy pursuant to guidelines established by
the Board of Trustees (the "Trustees"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase agreement.
Accordingly, the Trust could receive less than the repurchase price on the
sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by the
Internal Revenue Code, as amended (the "Code"). Distributions to shareholders
are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Trust's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income. Accordingly,
no provision for federal tax is necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest on the settlement date.
F. OTHER--Investment transactions are accounted for on the trade date.
LIQUID CASH TRUST
--------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At March
31, 1994, capital paid-in aggregated $464,940,539. Transactions in Trust shares
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
<S> <C> <C>
1994 1993
-------------- --------------
Shares outstanding, beginning of period 611,123,635 786,345,538
-------------------------------------------------------------
Shares sold 6,185,652,929 7,535,813,596
-------------------------------------------------------------
Shares issued to shareholders in payment of dividends
declared 11,070,167 13,916,103
-------------------------------------------------------------
Shares redeemed (6,342,906,192) (7,724,951,602)
------------------------------------------------------------- -------------- --------------
Shares outstanding, end of period 464,940,539 611,123,635
------------------------------------------------------------- -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
ADVISORY FEE--Federated Research Corp., the Trust's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.40 of 1% of the Trust's average daily net assets. The Adviser may voluntarily
choose to waive a portion of its fee and reimburse certain operating expenses of
the Trust. The Adviser can modify or terminate this voluntary waiver and
reimbursement at any time at its sole discretion.
ADMINISTRATION FEE--Federated Administrative Services ("FAS") provides
administrative personnel and services. Prior to March 1, 1994, these services
were provided at approximate cost. Effective March 1, 1994, the fee is based on
the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company serves
as transfer and dividend disbursing agent for the Trust. The fee is based on the
size, type, and number of accounts and transactions made by shareholders.
Certain of the Officers and Trustees of the Trust are Officers and Trustees of
the above companies.
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
LIQUID CASH TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Liquid Cash Trust as of March 31, 1994, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended March 31, 1994 and 1993, and the
financial highlights (see page 2 of the prospectus) for each of the years in the
ten-year period ended March 31, 1994. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
March 31, 1994 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 Liquid Cash Trust as
of March 31, 1994, the results of its operations, the changes in its net assets,
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE
Boston, Massachusetts
May 13, 1994
ADDRESSES
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Liquid Cash Trust Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Investment Adviser
Federated Research Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8602
Trust Company Boston, Massachusetts 02266-8602
-------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
-------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
-------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
-------------------------------------------------------------------------------------------------
Independent Auditor
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
-------------------------------------------------------------------------------------------------
</TABLE>
LIQUID CASH TRUST
PROSPECTUS
A No-Load, Open-End, Non-Diversified
Management Investment Company
May 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8050206A (5/94)
LIQUID CASH TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Liquid Cash Trust (the "Trust") dated May 31, 1994. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write or call the Trust.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST 1
---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
---------------------------------------------------------------
Types of Investments 1
Bank Instruments 1
Banker's Acceptances 1
U.S. Government Obligations 1
When-Issued and Delayed
Delivery Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 2
Investment Limitations 2
TRUST MANAGEMENT 3
---------------------------------------------------------------
Officers and Trustees 3
The Funds 5
Trust Ownership 5
Trustee Liability 6
INVESTMENT ADVISORY SERVICES 6
---------------------------------------------------------------
Adviser to the Trust 6
Advisory Fees 6
Other Related Services 6
OTHER ADVISORY SERVICES 6
---------------------------------------------------------------
ADMINISTRATIVE SERVICES 7
---------------------------------------------------------------
SHAREHOLDER SERVICES PLAN 7
---------------------------------------------------------------
BROKERAGE TRANSACTIONS 7
---------------------------------------------------------------
PURCHASING SHARES 7
---------------------------------------------------------------
Conversion to Federal Funds 7
DETERMINING NET ASSET VALUE 8
---------------------------------------------------------------
Use of the Amortized Cost Method 8
REDEEMING SHARES 9
---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
---------------------------------------------------------------
The Trust's Tax Status 9
Shareholders' Tax Status 9
YIELD 9
---------------------------------------------------------------
EFFECTIVE YIELD 9
---------------------------------------------------------------
PERFORMANCE COMPARISONS 10
---------------------------------------------------------------
APPENDIX 11
---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE TRUST
--------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated April 11, 1980.
INVESTMENT OBJECTIVE AND POLICIES
--------------------------------------------------------------------------------
The Trust's investment objective is to provide stability of principal and
current income consistent with stability of principal.
TYPES OF INVESTMENTS
The Trust invests in money market instruments which mature in one year or less.
The Trust may only purchase securities which qualify as short-term liquid assets
under Section 566.1(h) (12 C.F.R. sec.566.1(h) of the Office of Thrift
Supervision regulations.
The above investment objective and policies cannot be changed without approval
of shareholders.
BANK INSTRUMENTS
The Trust may invest more than $100,000 in savings accounts and in certificates
of deposits and other time deposits in Bank Insurance Fund-insured banks and
Savings Association Insurance Fund-insured institutions. Investments in such
accounts over $100,000 and the interest paid on these investments are not
insured.
BANKER'S ACCEPTANCES
Although the Trust may invest in banker's acceptances of Edge Act corporations,
the Board of Trustees has undertaken not to purchase these securities as long as
federally chartered credit unions are not permitted to own them.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Trust may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:
- the full faith and credit of the U.S. Treasury;
- the issuer's right to borrow from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
- the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
- Farm Credit Banks;
- Federal Home Loan Banks;
- Federal National Mortgage Association;
- Student Loan Marketing Association; and
- Federal Home Loan Mortgage Corporation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The Trust engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Trust's investment objective and
policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Trust. Settlement dates must occur within 120 days after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Trust sufficient to make payment for the
securities to be purchased are segregated at the trade date. These securities
are marked to market daily and maintained until the transaction is settled. The
Trust may engage in these transactions to an extent that would cause the
segregation of an amount up to 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust requires its custodian to take possession of the securities subject to
repurchase agreements, and these securities are marked to market daily. To the
extent that the original seller does not repurchase the securities from the
Trust, the Trust could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Trust might be
delayed pending court action. The Trust believes that under the regular
procedures normally in effect for custody of the Trust's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor
--------------------------------------------------------------------------------
of the Trust and allow retention or disposition of such securities. The Trust
will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers which are deemed by the Trust's
adviser to be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Trust may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Trust transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Trust will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Trust to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure that the
Trust will be able to avoid selling portfolio instruments at a disadvantageous
time.
When effecting reverse repurchase agreements, liquid assets of the Trust, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
INVESTMENT LIMITATIONS
The Trust will not change any of the investment limitations described below
without approval of shareholders.
SELLING SHORT AND BUYING ON MARGIN
The Trust will not sell any money market instruments short or purchase
any money market instruments on margin but may obtain such short-term
credits as may be necessary for clearance of purchases and sales of money
market instruments.
BORROWING MONEY
The Trust will not borrow money except as a temporary measure for
extraordinary or emergency purposes and then only in amounts not in
excess of 5% of the value of its total assets. In addition, the Trust may
enter into reverse repurchase agreements and otherwise borrow up to
one-third of the value of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling portfolio instruments. This latter practice is not for investment
leverage but solely to facilitate management of the portfolio by enabling
the Trust to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous.
Interest paid on borrowed funds will not be available for investment. The
Trust will liquidate any such borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding.
However, during the period any reverse repurchase agreements are
outstanding, but only to the extent necessary to assure completion of the
reverse repurchase agreements, the Trust will restrict the purchase of
portfolio instruments to money market instruments maturing on or before
the expiration date of the reverse repurchase agreements.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding the lesser of the
dollar amounts borrowed or 10% of the value of total assets at the time
of the borrowing.
INVESTING IN COMMODITIES, MINERALS, OR REAL ESTATE
The Trust will not invest in commodities, commodity contracts, oil, gas,
or other mineral programs or leases, or real estate including limited
partnership interests, except that it may purchase money market
instruments issued by companies that invest in or sponsor such interests.
UNDERWRITING
The Trust will not engage in underwriting of securities issued by others.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except that it may participate
in the federal funds market and purchase or hold money market
instruments, including repurchase agreements, permitted by its investment
objective and policies.
--------------------------------------------------------------------------------
ACQUIRING SECURITIES
The Trust will not acquire the voting securities of any issuer. It will
not invest in securities issued by any other investment company, except
as part of a merger, consolidation, or other acquisition. It will not
invest in securities of a company for the purpose of exercising control
or management.
INVESTING IN RESTRICTED SECURITIES
The Trust will not invest in money market instruments which are subject
to restrictions on resale under federal securities law.
INVESTING IN NEW ISSUERS
The Trust will not invest more than 5% of the value of its total assets
in money market instruments of unseasoned issuers, including their
predecessors, that have been in operation for less than three years.
DEALING IN PUTS AND CALLS
The Trust will not invest in puts, calls, straddles, spreads, or any
combination thereof.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Trust will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities, except as permitted by the
investment objective and policies and investment limitations of the
Trust.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Trust did not borrow money, pledge securities, or invest in reverse
repurchase agreements in excess of 5% of the value of its net assets during the
last fiscal year and has no present intent to do so in the coming fiscal year.
TRUST MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Research Corp.,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, and the Federated Funds described below.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
John F. Donahue*+ Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Advisers, Federated Management, and Federated Research; Chairman, Federated
Tower Research Corp.; Director, AEtna Life and Casualty Company; Chief Executive
Pittsburgh, PA Officer and Director, Trustee, or Managing General Partner of the Funds;
formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President of the Trust.
--------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R Wood and ventures in Southwest Florida; Director, Trustee, or Managing General
Associates, Inc., Realtors Partner of the Funds; formerly President, Naples Property Management, Inc.
3255 Tamiami Trail North
Naples, FL
--------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan
Pittsburgh, PA Homes, Inc.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
--------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
--------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President,
Boston, MA State Street Bank and Trust Company and State Street Boston Corporation;
Trustee, Lahey Clinic Foundation, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
--------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management
University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy and Technology.
--------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
--------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Federated Management, and Federated Research; President and Trustee,
Tower Federated Administrative Services; Trustee, Federated Services Company;
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee, or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
--------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Assistant
Federated Investors Secretary and Assistant Treasurer, Federated Research Corp.; Chairman and
Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
--------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Treasurer, Federated Research Corp.; Executive Vice President,
Pittsburgh, PA Treasurer, and Director, Federated Securities Corp.; Trustee, Federated
Services Company; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee of some of the Funds; Vice President and Treasurer of the
Funds.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
--------------------------------------------------------------------------------------------------------------------------------
Glen R. Johnson President Trustee, Federated Investors; President and/or Trustee of some of the Funds;
Federated Investors staff member, Federated Securities Corp. and Federated Administrative
Tower Services.
Pittsburgh, PA
--------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research; Vice President and Secretary,
Pittsburgh, PA Federated Research Corp.; Trustee, Federated Services Company; Executive
Vice President, Secretary, and Trustee, Federated Administrative Services;
Director and Executive Vice President, Federated Securities Corp.; Vice
President and Secretary of the Funds.
--------------------------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; President, CEO, COO, and
Federated Investors Assistant Secretary, Federated Research Corp.; Executive Vice President,
Tower Federated Securities Corp.; President and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Vice President of the Funds;
Director, Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance Company and President
of its Federated Research Division.
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty Term Trust, Inc.,-1999; Liberty U.S. Government Money Market Trust;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Trust's outstanding shares.
As of May 9, 1994, the following shareholders of record owned 5% or more of the
outstanding shares of the Trust: First Federal Savings and Loan Association,
Lake Charles, Louisiana, owned approximately 35,844,300 shares (7.60%); and
Central Bank & Trust Company, Lexington, Kentucky, owned approximately
45,000,000 shares (9.53%).
--------------------------------------------------------------------------------
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
--------------------------------------------------------------------------------
ADVISER TO THE TRUST
The Trust's investment adviser is Federated Research Corp. It is a subsidiary of
Federated Investors. All the Class A (voting) shares of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue. John F. Donahue is Chairman and Director of
Federated Research Corp.; President and Trustee, Federated Investors and
Chairman and Trustee of the Trust. John A. Staley, IV, is President and Director
of Federated Research Corp.; Vice President and Trustee, Federated Investors;
Executive Vice President, Federated Securities Corp.; and Vice President of the
Trust. John W. McGonigle is Vice President and Secretary of Federated Research
Corp.; Trustee, Vice President, Secretary, and General Counsel, Federated
Investors; Executive Vice President, Secretary and Trustee, Federated
Administrative Services, Director and Executive Vice President, Federated
Securities Corp.; Trustee, Federated Services Company; and Vice President and
Secretary of the Trust.
The adviser shall not be liable to the Trust or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security, or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Research Corp. receives an annual
investment advisory fee as described in the prospectus.
During the fiscal years ended March 31, 1994, 1993 and 1992 the Trust's adviser
earned $2,385,038, $3,029,432, and $3,788,376, respectively, of which
$2,293,761, $2,618,883, and $3,202,806, respectively, were waived due to
undertakings to limit the Trust's expenses.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER 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 shares of funds offered by Federated Securities Corp.
OTHER ADVISORY SERVICES
--------------------------------------------------------------------------------
Federated Research Corp. receives fees from certain depository institutions for
providing consulting and portfolio advisory services relating to each
institution's program of asset management. Federated Research Corp. may advise
such clients to purchase or redeem shares of investment companies, such as the
Trust, which are managed, for a fee, by Federated Research Corp. or other
affiliates of Federated Investors, and may advise such clients to purchase and
sell securities in the direct markets. Further, Federated Research Corp., and
other affiliates of adviser, may, from time to time, provide certain consulting
services and equipment to depository institutions in order to facilitate the
purchase of shares of Funds offered by Federated Securities Corp.
ADMINISTRATIVE SERVICES
--------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in the
Prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Trust's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as the "Administrators." For the fiscal
year ended March 31, 1994, the Administrators collectively earned $485,302. For
the fiscal years ended March 31, 1993, and 1992, Federated Administrative
Services, Inc., earned $424,176 and $452,063, respectively. John A. Staley, IV,
an officer of the Trust, and Dr. Henry J. Gailliot, an officer of Federated
Research Corp., the adviser to the Trust, each hold approximately 15% and 20%,
respectively, of the outstanding common stock and serve as directors of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc., and Federated
Administrative Services.
SHAREHOLDER SERVICES PLAN
--------------------------------------------------------------------------------
This arrangement permits the payment of fees to Federated Shareholder Services
and, indirectly, to financial institutions to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to, providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
For the fiscal period ending March 31, 1994, no payments were made pursuant to
the Shareholder Services Plan.
BROKERAGE TRANSACTIONS
--------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include:
- advice as to the advisability of investing in securities;
- security analysis and reports;
- economic studies;
- industry studies;
- receipt of quotations for portfolio evaluations; and
- similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors, in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
--------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing shares of
the Trust is explained in the prospectus under "Investing in the Trust."
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank and Trust
Company acts as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
--------------------------------------------------------------------------------
The net asset value for each share of the Trust is stabilized at $1.00. The days
on which net asset value is calculated by the Trust are described in the
prospectus. Net asset value will not be calculated on certain federal holidays
referred to in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Trust's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule"), as
amended, promulgated under the Investment Company Act of 1940. Under the Rule,
the Trustees must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and redemption,
at $1.00 per share, taking into account current market conditions and the
Trust's investment objective.
Under the Rule, the Trust is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Trust to receive the principal amount of the instrument
from the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Trust to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
The Trust acquires instruments subject to demand features and standby
commitments to enhance the instruments' liquidity. The Trust treats demand
features and standby commitments as part of the underlying instruments, because
the Trust does not acquire them for speculative purposes and cannot transfer
them separately from the underlying instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and a net asset value per share based upon
available indications of market value. The Trustees will decide what, if
any, steps should be taken if there is a difference of more than .5 of 1%
between the two values. The Trustees will take any steps they consider
appropriate (such as redemption in kind or shortening the average
portfolio maturity) to minimize any material dilution or other unfair
results arising from differences between the two methods of determining
net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Trust limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Trust to maintain a dollar weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than thirteen months can be
purchased by the Trust.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, the Trust will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
It is the Trust's usual practice to hold portfolio securities to maturity and
realize par, unless the investment adviser determines that sale or other
disposition is appropriate in light of the Trust's investment objective. Under
the amortized cost method of valuation, neither the amount of daily income nor
the net asset value is affected by any unrealized appreciation or depreciation
of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Trust computed by dividing the annualized daily income on the Trust's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Trust computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
--------------------------------------------------------------------------------
The Trust redeems shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although the transfer agent does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Trust's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Trust's net
asset value during any 90-day period.
TAX STATUS
--------------------------------------------------------------------------------
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Trust must, among other
requirements:
- derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- derive less than 30% of its gross income from the sale of securities held less
than three months;
- invest in securities within certain statutory limits; and
- distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid by
the Trust is eligible for the dividends received deduction available to
corporations.
CAPITAL GAINS
Because the Trust invests primarily for income and because it normally
holds portfolio instruments to maturity, it is not expected to realize
long-term capital gains.
YIELD
--------------------------------------------------------------------------------
The Trust's yield for the seven-day period ended March 31, 1994 was 3.44%.
The Trust calculates its yield daily, based upon the seven days ending on the
day of the calculation, called the "base period." This yield is computed by:
- determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the vale of any additional shares
purchased with dividends earned from the original one share;
- dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Trust, the yield will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
--------------------------------------------------------------------------------
The Trust's effective yield for the seven-day period ended March 31, 1994 was
3.50%.
The Trust's effective yield is computed by compounding the unannualized base
period return by:
- adding 1 to the base period return;
- raising the sum to the 365/7th power; and
- subtracting 1 from the result.
PERFORMANCE COMPARISONS
--------------------------------------------------------------------------------
The Trust's performance depends upon such variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates on money market instruments;
- changes in Trust expenses; and
- the relative amount of Trust cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Trust uses in advertising may include:
- LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Trust will quote its Lipper ranking in the "money market
instrument funds" category in advertising and sales literature.
Advertisements and other sales literature for the Trust may refer to total
return. Total return is the historic change in the value of an investment in the
Trust based on the monthly reinvestment of dividends over a specified period of
time.
APPENDIX
--------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION MUNICIPAL BOND RATING DEFINITIONS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
"A-1."
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATING DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
BA--Bonds which are not rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATINGS
DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broad-based access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers (or supporting institutions) rated Prime-1 (P-1) have a superior
ability for repayment of senior short-term debt obligations. P-1 repayment
ability will often be evidenced by many of the following characteristics:
Conservative capitalization structure with moderate reliance debt and ample
asset protection.
Broad margins in earnings coverage of fixed financial charges and high internal
cash generation.
Well-established access to a range of financial markets and assured sources of
alternate liquidity.
P-2--Issuers (or supporting institutions) rated Prime-2 (P-2) have a strong
ability for repayment of senior short-term obligations. This will normally be
evidenced by many of the characteristics cited above, but to a lesser degree.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
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FITCH INVESTORS SERVICE, INC. SHORT-TERM RATING DEFINITIONS
F-1--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+."
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as the "F-1+" and "F-1" categories.
8050206-B (5/94)
