LIQUID CASH TRUST
PROSPECTUS
The shares of Liquid Cash Trust (the "Trust") offered by this prospectus
represent interests in an 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. Section
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.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN
THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE;
THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated May 31,
1996, 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 or a paper copy of this prospectus, if you have received your
prospectus electronically, free of charge by calling 1-800-235-4669. To
obtain other information, or 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, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF TRUST EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
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 6
TRUST INFORMATION 6
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Distribution of Shares 7
Shareholder Services 7
Supplemental Payments to
Financial Institutions 7
Administration of the Trust 8
Administrative Services 8
NET ASSET VALUE 8
INVESTING IN THE TRUST 8
Share Purchases 8
By Wire 9
By Mail 9
Minimum Investment Required 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING SHARES 10
By Mail 10
Telephone Redemption 10
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
Voting Rights 11
TAX INFORMATION 11
Federal Income Tax 11
State and Local Taxes 11
PERFORMANCE INFORMATION 12
FINANCIAL STATEMENTS 13
INDEPENDENT AUDITORS' REPORT 21
ADDRESSES 22
</TABLE>
SUMMARY OF TRUST EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
</TABLE>
<TABLE>
<S> <C> <C>
ANNUAL TRUST OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.02%
12b-1 Fee None
Total Other Expenses 0.14%
Shareholder Services Fee (after waiver)(2) 0.00%
Total Trust Operating Expenses(3) 0.16%
</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 maximum Shareholder Services Fee is 0.25%.
(3) The total operating expenses in the table above are based on expenses
expected during the fiscal year ending March 31, 1997. The total
operating expenses were 0.16% for the fiscal year ended March 31, 1996,
and were 0.54% 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 $9 $20
</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
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 21.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.06 0.05 0.03 0.03 0.05 0.08 0.09 0.08 0.07 0.06
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.06) (0.05) (0.03) (0.03) (0.05) (0.08) (0.09) (0.08) (0.07) (0.06)
NET ASSET VALUE,
END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
TOTAL RETURN(A) 5.84% 4.88% 3.09% 3.35% 5.26% 7.93% 9.26% 8.57% 6.98% 6.58%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.16% 0.16% 0.16% 0.15% 0.15% 0.15% 0.15% 0.15% 0.15% 0.14%
Net investment
income 5.72% 4.64% 3.05% 3.33% 5.16% 7.62% 8.85% 8.17% 6.74% 6.36%
Expense waiver/
reimbursement(b) 0.38% 0.39% 0.39% 0.35% 0.34% 0.34% 0.36% 0.31% 0.33% 0.31%
SUPPLEMENTAL DATA
Net assets, end
of period
(000 omitted) $595,471 $313,679 $464,941 $611,124 $786,346 $856,624 $722,712 $551,184 $777,424 $1,084,623
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Trust is stability of principal and current
income consistent with stability of principal. While there is no assurance
that the Trust will achieve its investment objective, it will endeavor to do
so by complying with the various requirements of Rule 2a-7 under the
Investment Company Act of 1940 which regulates money market mutual funds and
by following the investment policies described in this prospectus. The
investment objective and the policies and limitations described below cannot
be changed without approval of shareholders.
INVESTMENT POLICIES
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. Section 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.
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:
<bullet> time deposits in a Federal Home Loan Bank;
<bullet> obligations of the United States;
<bullet> 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;
<bullet> 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;
<bullet> 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
<bullet> 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 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. Certain securities in which the Trust invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that
the seller does not repurchase the securities from the Trust, the Trust could
receive less than the repurchase price on any sale of such securities.
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
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Trust purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete these
transactions may cause the Trust to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Trust may pay more or less
than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Trust may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Trust may realize short-term profits
or losses upon the sale of such commitments.
INVESTMENT 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:
<bullet> 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
<bullet> invest more than 5% of its total assets in securities of issuers
that have records of less than three years of continuous operations.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. An
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research 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 and sale of
portfolio instruments.
ADVISORY FEES. The adviser receives an annual investment advisory fee
equal to .40 of 1% of the Trust's average daily net assets. The
adviser has undertaken to reimburse the Trust up to the amount of the
advisory fee for operating expenses in excess of limitations
established by certain states. The adviser also may voluntarily choose
to waive a portion of its fee or reimburse other expenses of the
Trust, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. Federated Research Corp., a Maryland
corporation, organized on 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. With over
$80 billion invested across more than 250 funds under management
and/or administration by its subsidiaries, as of December 31, 1995,
Federated Investors is one of the largest mutual fund investment
managers in the United States. With more than 1,800 employees,
Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through
4,000 financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Trust and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Trust's shareholders and must place the
interests of shareholders ahead of the employees' own interest. Among
other things, the codes: require preclearance and periodic reporting
of personal securities transactions; prohibit personal transactions in
securities being purchased or sold, or being considered for purchase
or sale, by the Trust; prohibit purchasing securities in initial
public offerings; and prohibit taking profits on securities held for
less than sixty days. Violations of the codes are subject to review by
the Trustees and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the
Trust. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25 of 1% of the
average daily net asset value of its shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily. Under the Shareholder
Services Agreement, Federated Shareholder Services will either perform
shareholder services directly or will select financial institutions to
perform shareholder services. Financial institutions will receive fees based
upon shares owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time
to time by the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to payments made
pursuant to the Shareholder Services Agreement, Federated Securities Corp.
and Federated Shareholder Services, from their own assets, may pay financial
institutions supplemental fees for the performance of substantial sales
services, distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training seminars for
their employees, providing sales literature, and engineering computer
software programs that emphasize the attributes of the Trust. Such assistance
will be predicated upon the amount of shares the financial institution sells
or may sell, and/or upon the type and nature of sales or marketing support
furnished by the financial institution. Any payments made by the distributor
may be reimbursed by the Trust's investment adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Trust. Federated Services Company 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>
AVERAGE AGGREGATE
MAXIMUM DAILY NET ASSETS OF THE
ADMINISTRATIVE FEE FEDERATED FUNDS
<S> <C>
.15 of 1% on the first $250 million
.125 of 1% on the next $250 million
.10 of 1% on the next $250 million
.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 Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Trust attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting total liabilities from
total assets and dividing the remainder by the number of shares outstanding.
The Trust cannot guarantee that its net asset value will always remain at
$1.00 per share.
The net asset value is determined at 2:00 p.m., 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day, and Christmas Day.
INVESTING IN THE TRUST
SHARE PURCHASES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Investors who purchase Shares through a non-
affiliated bank or broker may be charged an additional service fee by that
bank or broker. Shares may be purchased either by wire or by check. The Trust
reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone.
BY WIRE. To purchase 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 day. Federal funds should be wired as follows: Federated
Shareholder Services Company, c/o State Street Bank and Trust Company,
Boston, MA; Attention: EDGEWIRE; For Credit to: 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 by wire on holidays when
wire transfers are restricted. Questions on wire purchases should be directed
to your shareholder services representative at the telephone number listed on
your account statement.
BY MAIL. To purchase by mail, send a check made payable to Liquid Cash Trust
to: Federated Shareholder Services Company, P.O. Box 8600, Boston,
Massachusetts 02266-8600. Orders by mail are considered received when payment
by check is converted into federal funds. This is normally the next business
day after the check is received.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment is $25,000. However, an account may be opened
with a smaller amount as long as the minimum is reached within 90 days.
Minimum investments will be calculated by combining all accounts maintained
with the Trust. Financial institutions may impose different minimum
investment requirements on their customers.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Trust or Federated Shareholder
Services Company in writing.
Monthly confirmations are sent to report transactions such as all 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 to the Trust. Dividends are compounded,
which is accomplished by adding the month-to-date accrued dividends to the
current share balance when calculating the daily dividend. Shares purchased
by wire before 3:00 p.m. (Eastern time) begin earning dividends that day.
Shares purchased by check begin earning dividends the day after the check is
converted into federal funds.
CAPITAL GAINS
The Trust does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease
in dividends. The Trust will distribute in cash or additional shares any
realized net long-term capital gains at least once every 12 months.
REDEEMING SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions
will be made on days on which the Trust computes its net asset value.
Redemption requests must be received in proper form and can be made as
described below.
BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, Massachusetts
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Trust name; the account name as
registered with the Trust; the account number; and the number of shares to be
redeemed or the dollar amount requested. All owners of the account must sign
the request exactly as the shares are registered. Normally, a check for the
proceeds is mailed within one business day, but in no event more than seven
days, after the receipt of a proper written redemption request. Dividends are
paid up to and including the day that a redemption request is processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Trust or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings assocation whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Trust does not accept signatures guaranteed by a
notary public.
TELEPHONE REDEMPTION
Shares may be redeemed by telephoning the Trust. Telephone instructions may
be recorded and if reasonable procedures are not followed by the Trust, it
may be liable for losses due to unauthorized or fraudulent telephone
instructions. 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.
A daily dividend will be paid on shares redeemed if the redemption request is
received after 3:00 p.m. (Eastern time). However, the proceeds are not wired
until the following business day. Redemption requests received before 3:00
p.m. (Eastern time) will be paid the same day but will not be entitled to
that day's dividends. Proceeds from redemption requests received on holidays
when wire transfers are restricted will be wired the following business day.
Questions about telephone redemptions on days when wire transfers are
restricted should be directed to your shareholder services representative at
the telephone number listed on your account statement.
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 "By Mail," should be considered. If at
any time the Trust shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem shares in any account, except accounts maintained by retirement plans,
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.
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 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.
TAX INFORMATION
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies.
Unless otherwise exempt, shareholders are required to pay federal income tax
on any dividends and other distributions received. This applies whether
dividends and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the status
of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Trust advertises its total return, yield and effective
yield.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on
an investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by
an investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
Advertisements and 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, advertisements for the Trust may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Trust's performance to certain indices.
LIQUID CASH TRUST
PORTFOLIO OF INVESTMENTS
MARCH 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) REPURCHASE AGREEMENTS-93.4%
$ 25,000,000 Aubrey G. Lanston & Co., Inc., 5.42%, dated 3/29/1996,
due 4/1/1996 $ 25,000,000
25,000,000 BT Securities Corp., 5.43%, dated 3/29/1996, due 4/1/1996 25,000,000
25,000,000 BOT Securities, Inc., 5.50%, dated 3/29/1996, due 4/1/1996 25,000,000
21,000,000 Barclays de Zoete Wedd Securities, Inc., 5.45%, dated 3/29/1996,
due 4/1/1996 21,000,000
25,000,000 Bear, Stearns & Co., Inc., 5.35%, dated 3/29/1996, due 4/1/1996 25,000,000
25,000,000 CIBC Wood Gundy Securities Corp., 5.55%, dated 3/29/1996,
due 4/1/1996 25,000,000
25,000,000 Daiwa Securities America, Inc., 5.53%, dated 3/29/1996,
due 4/1/1996 25,000,000
25,000,000 Dresdner Securities (USA), Inc., 5.40%, dated 3/29/1996,
due 4/1/1996 25,000,000
25,000,000 First Union Capital Markets Corp., 5.43%, dated 3/29/1996,
due 4/1/1996 25,000,000
120,000,000 Fuji Securities, Inc., 5.45%, dated 3/29/1996, due 4/1/1996 120,000,000
20,000,000(b) Goldman, Sachs & Company, 5.47%, dated 3/20/1996,
due 4/2/1996 20,000,000
25,000,000 Greenwich Capital Markets, Inc., 5.625%, dated 3/29/1996,
due 4/1/1996 25,000,000
25,000,000(b) J.P. Morgan Securities, Inc., 5.30%, dated 3/13/1996,
due 6/11/1996 25,000,000
20,000,000 Morgan Stanley & Co., Inc., 5.60%, dated 3/29/1996, due 4/1/1996 20,000,000
25,000,000 National Westminster Bank USA, 5.55%, dated 3/29/1996,
due 4/1/1996 25,000,000
25,000,000 Nomura Securities International, Inc., 5.45%, dated 3/29/1996,
due 4/1/1996 25,000,000
25,000,000 PaineWebber, Inc., 5.45%, dated 3/29/1996, due 4/1/1996 25,000,000
</TABLE>
LIQUID CASH TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A) REPURCHASE AGREEMENTS-CONTINUED
$ 25,000,000 Swiss Bank Corp., 5.43%, dated 3/29/1996, due 4/1/1996 $ 25,000,000
25,000,000 UBS Securities, Inc., 5.58%, dated 3/29/1996, due 4/1/1996 25,000,000
TOTAL REPURCHASE AGREEMENTS 556,000,000
FEDERAL FUNDS SOLD-6.7%
20,000,000 Huntington National Bank, 5.43%, dated 3/29/1996,
due 4/1/1996 20,000,000
20,000,000 Wachovia Bank, 5.43%, dated 3/29/1996, due 4/1/1996 20,000,000
TOTAL FEDERAL FUNDS $ 40,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(C) $ 596,000,000
</TABLE>
(a) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in the repurchase agreements are through
participation in joint accounts with other Federated funds.
(b) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days if the creditworthiness of the issuer is
downgraded.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($595,471,233) at March 31, 1996.
(See Notes which are an integral part of the Financial Statements)
LIQUID CASH TRUST
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
ASSETS:
<S> <C> <C>
Investments in repurchase agreements $ 556,000,000
Investments in securities 40,000,000
Total investments in securities, at amortized cost and value $ 596,000,000
Cash 252,886
Income receivable 357,674
Receivable for shares sold 72,134
Total assets 596,682,694
LIABILITIES:
Payable for shares redeemed $ 6,129
Income distribution payable 1,156,842
Accrued expenses 48,490
Total liabilities 1,211,461
NET ASSETS for 595,471,233 shares outstanding $ 595,471,233
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
($595,471,233 / 595,471,233 shares 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, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 29,388,672
EXPENSES:
Investment advisory fee $ 2,000,415
Administrative personnel and services fee 378,389
Custodian fees 110,283
Transfer and dividend disbursing agent fees and expenses 32,307
Directors'/Trustees' fees 14,535
Auditing fees 13,371
Legal fees 3,716
Portfolio accounting fees 82,863
Share registration costs 30,033
Printing and postage 10,182
Insurance premiums 8,674
Taxes 1,125
Miscellaneous 8,661
Total expenses 2,694,554
Deduct-Waiver of investment advisory fee (1,913,606)
Net expenses 780,948
Net investment income $ 28,607,724
</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,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS-
Net investment income $ 28,607,724 $ 17,409,105
DISTRIBUTIONS TO SHAREHOLDERS-
Distributions from net investment income (28,607,724) (17,409,105)
SHARE TRANSACTIONS-
Proceeds from sale of shares 5,099,133,598 4,381,006,659
Net asset value of shares issued to shareholders in payment of
distributions declared 17,157,868 11,516,719
Cost of shares redeemed (4,834,498,765) (4,543,785,385)
Change in net assets resulting from share transactions 281,792,701 (151,262,007)
Change in net assets 281,792,701 (151,262,007)
NET ASSETS:
Beginning of period 313,678,532 464,940,539
End of period $ 595,471,233 $ 313,678,532
</TABLE>
(See Notes which are an integral part of the Financial Statements)
LIQUID CASH TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
1. ORGANIZATION
Liquid Cash Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a non-diversified, open-end
management investment company. The investment objective of the Trust is
stability of principal and current income consistent with stability of
principal.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS-The Trust's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under
the Act.
REPURCHASE AGREEMENTS-It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System, or to have segregated within the
custodian bank's vault, all securities held as collateral under
repurchase agreement transactions. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market
value of each repurchase agreement's collateral to ensure that the
value of collateral at least equals the repurchase price to be paid
under the repurchase agreement transaction.
The Trust will only enter into repurchase agreements with banks and
other recognized financial institutions, such as broker/dealers, which
are deemed by the Trust's adviser to be creditworthy pursuant to the
guidelines and/or standards reviewed or established by the Board of
Trustees (the "Trustees"). Risks may arise from the potential
inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Trust could receive less than the
repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS-Interest income and
expenses are accrued daily. Bond premium and discount, if applicable,
are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the
ex-dividend date.
FEDERAL TAXES-It is the Trust's policy to comply with the provisions
of the Code applicable to regulated investment companies and to
distribute to shareholders each year substantially all of its income.
Accordingly, no provisions for federal tax are necessary.
LIQUID CASH TRUST
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.
USE OF ESTIMATES-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts of assets,
liabilities, expenses and revenues reported in the financial
statements. Actual results could differ from those estimated.
OTHER-Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
March 31, 1996, capital paid-in aggregated $595,471,233. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995
<S> <C> <C>
Shares sold 5,099,133,598 4,381,006,659
Shares issued to shareholders in payment of distributions declared 17,157,868 11,516,719
Shares redeemed (4,834,498,765) (4,543,785,385)
Net change resulting from Trust share transactions (281,792,701) (151,262,007)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE-Federated Research, the Trust's investment
adviser, (the "Adviser"), receives for its services an annual
investment advisory fee equal to .40% of the Trust's average daily net
assets. The Adviser may voluntarily choose to waive any portion of its
fee. The Adviser can modify or terminate this voluntary waiver at any
time at its sole discretion.
ADMINISTRATIVE FEE-Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with
administrative personnel and services. The fee paid to FServ is based
on the level of average aggregate daily net assets of all funds
advised by subsidiaries of Federated Investors for the period. The
administrative fee received during the period of the Administrative
Services Agreement shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
LIQUID CASH TRUST
SHAREHOLDER SERVICES FEE-Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, the Trust will pay
Federated Shareholder Services up to .25% of average daily net assets
of the Trust for the period. The fee paid to Federated Shareholder
Services is used to finance certain services for shareholders and to
maintain shareholder accounts. For the period ended March 31, 1996,
the Trust did not incur a shareholder services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES-FServ,
through its registered transfer and dividend disbursing agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records and receives a fee based on the size, type, and
number of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES-FServ maintains the Trust's accounting
records for which it receives a fee. The fee is based on the level of
the Trust's average daily net assets for the period, plus out-of-
pocket expenses.
GENERAL-Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
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,
1996, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended March 31, 1996 and
1995, and the financial highlights for each of the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our 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
securities owned at March 31, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Liquid Cash Trust
as of March 31, 1996, the results of its operations, the changes in its net
assets, and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
May 16, 1996
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 Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Custodian
State Street Bank and Trust Company P.O. Box 8600
Boston, Massachusetts 02266-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services P.O. Box 8600
Company Boston, Massachusetts 02266-8600
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, Pennsylvania 15222-5401
</TABLE>
LIQUID CASH TRUST
PROSPECTUS
An Open-End, Non-Diversified,
Management Investment Company
Prospectus dated May 31, 1996
[LOGO]
FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
FEDERATED SECURITIES CORP. IS THE DISTRIBUTOR OF THE FUND
AND IS A SUBSIDIARY OF FEDERATED INVESTORS.
[LOGO]
CUSIP 536319106
8050206A(5/96)
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, 1996. This
Statement is not a prospectus. You may request a copy of the prospectus
or a paper copy of this Statement of Additional Information, if you have
received it electronically, free of charge by calling 1-800-235-4669.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated May 31, 1996
FEDERATED SECURITIES
CORP.
Distributor
A subsidiary of
Federated Investors
TRUST HISTORY 1
INVESTMENT OBJECTIVE AND POLICIES 1
Types of Investments 1
Bank Instruments 1
Banker's Acceptance 1
U.S. Government Obligations 1
When-Issued and Delayed Delivery Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Investment Limitations 2
Regulatory Compliance 3
LIQUID CASH TRUST MANAGEMENT 4
Trust Ownership 8
Trustees Compensation 8
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 9
Other Related Services 10
OTHER SERVICES 10
Trust Administration 10
Custodian and Portfolio Accountant 10
Transfer Agent 10
Independent Auditors 10
SHAREHOLDER SERVICES 10
BROKERAGE TRANSACTIONS 10
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 11
MASSACHUSETTS PARTNERSHIP LAW 11
THE TRUST'S TAX STATUS 11
PERFORMANCE INFORMATION 12
Total Return 12
Yield 12
Effective Yield 12
Performance Comparisons 12
ABOUT FEDERATED INVESTORS 13
Mutual Fund Market 13
Institutional Clients 13
Trust Organizations 13
Broker/Dealer and Bank Broker/Dealer
Subsidiaries 13
TRUST HISTORY
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. Section566.1(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 ACCEPTANCE
Although the Trust may invest in banker's acceptance 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:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o 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:
o Farm Credit Banks;
o Federal Home Loan Banks;
o Federal National Mortgage Association;
o Student Loan Marketing Association; and
o Federal Home Loan Mortgage Corporation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Trust sufficient to make payment for the securities to be purchased are
segregated on the Trust`s records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
The Trust does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
In the event that a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Trust might be delayed
pending court action. The Trust believes that under the regular procedures
normally in effect for custody of the Trust's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor
of the Trust and allow retention or disposition of such securities. The
Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to guidelines established
by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Trust may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Trust transfers possession of a portfolio instrument 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 does not ensure this result. 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 on the Trust's records at the trade date; 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 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.
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. In particular, the
Trust will comply with the various requirements of Rule 2a-7 which regulates
money market mutual funds. For example, with limited exceptions, Rule 2a-7
prohibits the investment of more than 5% of the Trust's total assets in the
securities of any one issuer, although the Trust's investment limitation only
requires such 5% diversification with respect to 75% of its assets. The Trust
will invest more than 5% of its assets in any one issuer only under the
circumstances permitted by Rule 2a-7. 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.
LIQUID CASH TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Liquid Cash Trust and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds. Mr. Donahue is
the father of J. Christopher Donahue, Executive Vice President of the Trust .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's Hospital
of Pittsburgh; Director or Trustee of the Funds; formerly, Senior Partner,
Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; President, Northgate Village Development
Corporation; Partner or Trustee in private real estate ventures in Southwest
Florida; Director or Trustee of the Funds; formerly, President, Naples
Property Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; Director
or Trustee of the Funds; formerly, Vice Chairman and Director, PNC Bank,
N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian and
Montefiore Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director
or Trustee of the Funds; formerly, Counsel, Horizon Financial, F.A., Western
Region.
Peter E. Madden
Seacliff
562 Bellevue Avenue
New port, RI
Birthdate: March 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts; Director or
Trustee of the Funds; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation.
Gregor F. Meyer
Henny, Kochuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Shareholder, Henny, Kochuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee
of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics and Management Consultant; Trustee,
Carnegie Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Management
Center; Director or Trustee of the Funds; President Emeritus, University of
Pittsburgh; founding Chairman, National Advisory Council for Environmental
Policy and Technology and Federal Emergency Management Advisory Board.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/marketing consultant; Conference Coordinator, Non-profit
entities; Director or Trustee of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the Funds;
staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Trust.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research, Ltd.;
Executive Vice President and Director, Federated Securities Corp.; Trustee,
Federated Shareholder Services Company; Trustee or Director of some of the
Funds; President, Executive Vice President and Treasurer of some of the
Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated Services
Company; President and Trustee, Federated Shareholder Services; Director,
Federated Securities Corp.; Executive Vice President and Secretary of the
Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
David M. Taylor
Federated Investors Tower
Pittsburgh, PA
Birthdate: January 13, 1947
Treasurer
Senior Vice President and Trustee, Federated Investors; Vice President,
Federated Shareholder Services; Executive Vice President, Federated
Securities Corp.; Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board between meetings of
the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management Series;
Arrow Funds; Automated Government Money Trust; Blanchard Group of Funds;
Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated ARMs Fund; Federated Equity Funds; Federated Exchange Fund,
Ltd.; Federated GNMA Trust; Federated Government Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Master Trust; Federated
Municipal Trust; Federated Short-Term Municipal Trust; Federated Short-Term
U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U. S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 5-10 Years; 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; Federated Insurance 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 U.S. Government Money Market
Trust; Liberty Term Trust, Inc.-1999; Liberty Utility Fund, Inc.; Managed
Series Trust; Money Market Management, Inc.; Money Market Obligations Trust;
Money Market Trust; Municipal Securities Income Trust; Newpoint Funds; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds;
Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund,
Inc.; Targeted Duration Trust; Tax-Free Instruments Trust; Trust for
Financial Institutions; Trust For Government Cash Reserves; Trust for Short-
Term U.S. Government Securities; Trust for U.S. Treasury Obligation; The
Virtus Funds; and World Investment Series, Inc.
TRUST OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust`s outstanding
shares.
As of May 6, 1996, the following shareholders of record owned 5% or more of
the outstanding shares of the Trust: Eagle Federal Savings Bank, Bristol,
Connecticut, owned approximately 53,150,000 shares (8.96%) and Central Bank &
Trust Company, Lexington, Kentucky, owned approximately 35,000,000 shares
(5.90%).
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST* FROM FUND COMPLEX +
John F. Donahue, $ 0 $0 for the Trust and
Chairman and Trustee 54 other investment companies in the Fund
Complex
Thomas G. Bigley,++ $1,383.66 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund Complex
John T. Conroy, Jr., $1,502.92 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
William J. Copeland, $1,502.92 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
James E. Dowd, $1,502.92 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D., $1,383.66 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Edward L. Flaherty, Jr., $1,502.92 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Peter E. Madden, $1,383.66 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Gregor F. Meyer, $1,383.66 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
John E. Murray, Jr., $1,383.66 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Wesley W. Posvar,$1,383.66 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
Marjorie P. Smuts, $1,383.66 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund Complex
++
Mr. Bigley served on 39 investment companies in the Federated Funds Complex
from January 1 through September 30, 1995. On October 1, 1995, he was
appointed a Trustee on 15 additional Federated Funds.
*Information is furnished for the fiscal year ended March 31, 1996.
+The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Trust's investment adviser is Federated Research Corp. It is a
subsidiary of Federated Investors. All the voting securities of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue,
his wife and his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Research Corp. receives an annual
investment advisory fee as described in the prospectus. For the fiscal years
ended March 31, 1996, 1995, and 1994, the adviser earned $2,415,000,
$1,500,586, and $2,385,038, respectively, of which $1,913,606, $1,444,401,
and $2,293,761, respectively, were waived.
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 fees.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
OTHER RELATED SERVICES
Affiliates and 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 SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in
the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services served as the Trust's Administrator. Prior to March
1, 1994, Federated Administrative Services, Inc. served as the Trust's
Administrator. Both former Administrators are subsidiaries of Federated
Investors. For purposes of this Statement of Additional Information,
Federated Administrative Services and Federated Administrative Services,
Inc., may hereinafter collectively be referred to as, the "Administrators".
For the fiscal year ended March 31, 1996, 1995, and 1994, the Administrators
earned $378,389, $284,029 and $485,302, respectively. Dr. Henry J.
Gailliot, an officer of Federated Research Corp., the adviser to the Trust,
holds approximately 20% of the outstanding common stock and serves as a
director of Commercial Data Services, Inc., a company which provides computer
processing services to Federated Services Company.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for
the securities and cash of the Trust. Federated Services Company,
Pittsburgh, Pennsylvania, provides certain accounting and recordkeeping
services with respect to the Trust's portfolio investments. The fee paid for
this service is based upon the level of the Trust's average net assets for
the period plus out-of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent, Federated
Shareholder Services Company, maintains all necessary shareholder records.
For its services, the transfer agent receives a fee based upon the size, type
and number of accounts and transactions made by shareholders.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP, Pittsburgh,
Pennsylvania.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided which
are necessary for the maintenance of shareholder accounts and to encourage
personal services to shareholders by a representative who has knowledge of
the shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to: providing office space,
equipment, telephone facilities, and various clerical, supervisory, computer,
and other personnel as necessary or beneficial to establish and to maintain
shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries; and assisting clients in changing
dividend options, account designations, and addresses.
By adopting the Shareholder Services Agreement, the Trustees expect that the
Trust will benefit by: (1) providing personal services to shareholders; (2)
investing shareholder assets with a minimum of delay and administrative
detail; (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their accounts.
For the fiscal year ending March 31, 1996, no payments were paid pursuant to
the Shareholder Services Agreement.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the adviser will generally use
those who are recognized dealers in specific portfolio instruments, except
when a better price and execution of the order can be obtained elsewhere.
The adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees. The adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Trust or to the adviser and may
include: advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of
quotations for portfolio evaluations; and similar services. Research
services provided by brokers and dealers may be used by the adviser or its
affiliates in advising the Trust and other accounts. To the extent that
receipt of these services may supplant services for which the adviser or its
affiliates might otherwise have paid, it would tend to reduce their expenses.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided. During the fiscal year(s) ended
March 31, 1996, 1995, and 1994, the Trust paid no brokerage commissions.
Although investment decisions for the Trust are made independently from those
of the other accounts managed by the adviser, investments of the type the
Trust may make may also be made by those other accounts. When the Trust and
one or more other accounts managed by the adviser are prepared to invest in,
or desire to dispose of, the same security, available investments or
opportunities for sales will be allocated in a manner believed by the adviser
to be equitable to each. In some cases, this procedure may adversely affect
the price paid or received by the Trust or the size of the position obtained
or disposed of by the Trust. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Trust.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of
the Trust computed by dividing the annualized daily income on the Trust's
portfolio by the net asset value computed as above may tend to be higher than
a similar computation made by using a method of valuation based upon market
prices and estimates. In periods of rising interest rates, the opposite may
be true.
The Trust's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed
for purposes of distribution and redemption, at $1.00 per share, taking into
account current market conditions and the Trust's investment objective. The
procedures include monitoring the relationship between the amortized cost
value per share and the net asset value per share based upon available
indications of market value. The Trustees will decide what, if any, steps
should be taken if there is a difference of more than 0.5 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.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1%
of the Trust's net asset value, whichever is less, for any one shareholder
within a 90-day period. Any redemption beyond this amount will also be in
cash unless the Trustees determine that further payments should be in kind.
In such cases, the Trust will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Trust
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is not
as liquid as a cash redemption. If redemption is made in kind, shareholders
who sell these securities could receive less than the redemption value and
could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument that the Trust or
its Trustees enter into or sign on behalf of the Trust.
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 to
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 to pay judgments against them from its assets.
THE TRUST'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Trust must, among other requirements: derive at least 90% of
its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its net
income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in shares of the Trust, the performance will be reduced for those
shareholders paying those fees.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is computed
by multiplying the number of shares owned at the end of the period by the net
asset value per share at the end of the period. The number of shares owned
at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, adjusted over the period by any
additional shares assuming the monthly reinvestment of all dividends and
distributions.
The Trust's average annual total returns for the one-year, five-year and ten-
year period ended March 31, 1996, were 5.84%, 4.48% and 6.16%, respectively.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased
with dividends earned from the original one share and all dividends declared
on the original and any purchased shares; dividing the net change in the
account's value by the value of the account at the beginning of the base
period to determine the base period return; and multiplying the base period
return by 365/7.
The Trust's yield for the seven-day period ended March 31, 1996, was 5.35%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base period
return by: adding 1 to the base period return; raising the sum to the 365/7th
power; and subtracting 1 from the result.
The Trust's effective yield for the seven-day period ended March 31, 1996 was
5.49%.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds, and methods used to value portfolio securities and compute offering
price. The financial publications and/or indices which the Trust uses in
advertising may include:
O LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money market
funds weekly. Donoghue's Money Market Insight publication reports
monthly and 12-month-to-date investment results for the same money
funds.
o MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is reflected
in its investment decision making-structured, straightforward, and
consistent. This has resulted in a history of competitive performance with a
range of competitive investment products that have gained the confidence of
thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research. Investment
decisions are made and executed by teams of portfolio managers, analysts, and
traders dedicated to specific market sectors.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market funds,
a principal means used by money managers today to value money market fund
shares. Other innovations include the first institutional tax-free money
market fund. As of December 31, 1995, Federated Investors managed more than
$31 billion in assets across approximately 43 money market funds, including
17 government, 8 prime and 18 municipal with assets approximating $17
billion, $7.4 billion and $6.6 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed income
management. Henry A. Frantzen, Executive Vice President, oversees the
management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $2 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for a
variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional clients
nationwide by managing and servicing separate accounts and mutual funds for a
variety of applications, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional
clients include corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisors. The marketing effort to these institutional clients is headed by
John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than 1,500
banks and trust organizations. Virtually all of the trust divisions of the
top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. The marketing effort to
these firms is headed by James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
Cusip No.: 536319106
