LIQUID CASH TRUST
Prospectus
The shares of Liquid Cash Trust (the `Trust'') offered by this prospectus
represent interests in an open-end, 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.x
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, 1997, with the Securities and Exchange Commission (`SEC''). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries
about the Trust, contact the Trust at the address listed in the back of
this prospectus. The Statement of Additional Information, material
incorporated by reference into this document, and other information
regarding the Trust is maintained electronically with the SEC at Internet
Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated May 31, 1997
Table of Contents
Summary of Trust Expenses 1
Financial Highlights 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Investment Risks 4
Investment Limitations 5
Trust Information 5
Management of the Trust 5
Distribution of Shares 5
Administration of the Trust 6
Net Asset Value 6
Investing in the Trust 6
Share Purchases 6
Minimum Investment Required 7
Certificates and Confirmation 7
Dividends 7
Capital Gains 7
Redeeming Shares 7
By Mail 7
Telephone Redemption 8
Accounts with Low Balances 8
Shareholder Information 8
Voting Rights 8
Tax Information 8
Federal Income Tax 8
State and Local Taxes 8
Performance Information 9
Financial Statements 10
Independent Auditors' Report 16
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 diversification and other requirements of Rule
2a-7 under the Investment Company Act of 1940 which regulates money market
mutual funds and by following the investment policies described in this
prospectus. The investment objective and the policies and limitations
described below 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:
ntime deposits in a Federal Home Loan Bank;
nobligations of the United States;
nobligations 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;
ntime 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;
nloans 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
ngeneral obligations (other than gold-related obligations), of any state,
territory, or possession of the United States, or their political
subdivisions, so long as they are either (1) rated in one of the four
highest grades by nationally recognized statistical rating organizations
(``NRSROs'') or (2) issued by a public housing agency and have the full
faith and credit of the United States. A full description of the rating
categories is included in the Appendix to the Statement of Additional
Information.
As an operating policy which may be changed without shareholder approval,
the Trust will continue to limit its portfolio, within the parameters of
Section 566.1(h), to legal investments for federal credit unions as set
forth in Sections 107(7) and (8) of the Federal Credit Union Act and Part
703 of the National Credit Union Administration regulations. The Trust will
provide the National Credit Union Administration and all federal credit
union shareholders with sixty (60) days' written notice should the Trust
intend to change such operating policy.
The Trust may also enter into repurchase agreements or reverse repurchase
agreements secured by those obligations of the U.S. government and bank
instruments which but for their maturities qualify as short-term liquid
assets.
Concentration of Investments
The Trust will invest at least 25% of its total assets in bank instruments
such as time and demand deposits and certificates of deposit, or
instruments secured by these instruments such as repurchase agreements. It
may invest less than 25% when, in the opinion of the investment adviser, it
is advisable to maintain a temporary defensive posture.
Loans of Federal Funds
Federal funds are funds held by a regional Federal Reserve Bank for the
account of a bank which is a member of that Federal Reserve Bank. The
member bank can lend federal funds to another member bank. These loans are
unsecured and are made at a negotiated interest rate for a negotiated time
period, generally overnight. Because reserves are not required to be
maintained on borrowed federal funds, member banks borrowing federal funds
are willing to pay interest rates which are generally higher than they pay
on other deposits of comparable size and maturity which are subject to
reserve requirements. The Trust sells its shares only to `depository
institutions''as that term is defined in Regulation D of the Board of
Governors of the Federal Reserve System and limits its portfolio only to
instruments which `depository institutions'' can purchase directly.
Therefore, the Trust can participate in the federal funds market and in
effect make loans of federal funds by instructing any willing member bank
at which the Trust maintains an account to loan federal funds on the
Trust's behalf. These transactions permit the Trust to obtain interest
rates on its assets which are comparable to those earned by member banks
when they loan federal funds. The Trust may engage in loans of federal
funds and similar loans of unsecured day(s) funds, maturing in six months
or less, to BIF or SAIF-insured institutions. As a matter of investment
policy, which may be changed without shareholder approval, the Trust will
only lend federal funds to financial institutions that the Trust's adviser
determines to be adequately or well capitalized. Financial institutions are
deemed to be adequately or well capitalized pursuant to guidelines
established by the Trustees.
Repurchase Agreements
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.
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:
nborrow 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
ninvest 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 0.40% of
the Trust's average daily net assets. 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 $110 billion
invested across more than 300 funds under management and/or
administration by its subsidiaries, as of December 31, 1996, Federated
Investors is one of the largest mutual fund investment managers in the
United States. With more than 2,000 employees, Federated continues to be
led by the management who founded the company in 1955. Federated funds
are presently at work in and through 4,500 financial institutions
nationwide.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Trust and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Trust's shareholders and must place the interests of
shareholders ahead of the employees' own 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.
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 0.25% of the average daily net asset value of
its shares, computed at an annual rate, to obtain certain personal services
for shareholders and to maintain shareholder accounts. From time to time
and for such periods as deemed appropriate, the amount stated above may be
reduced voluntarily. Under the Shareholder Services Agreement, Federated
Shareholder Services will either perform shareholder services directly or
will select financial institutions to perform shareholder services.
Financial institutions will receive fees based upon shares owned by their
clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Trust
and Federated Shareholder Services.
Supplemental Payments to Financial Institutions
In addition to payments made pursuant to the Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder Services,
from their own assets, may pay financial institutions supplemental fees for
the performance of substantial sales services, distribution-related support
services, or shareholder services. The support may include sponsoring
sales, educational and training seminars for their employees, providing
sales literature, and engineering computer software programs that emphasize
the attributes of the Trust. Such assistance will be predicated upon the
amount of shares the financial institution sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
Administration of the Trust
Administrative Services
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and
financial reporting services) necessary to operate the Trust. 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:
Average Aggregate
Maximum FeeDaily Net Assets
0.15%on the first $250 million
0.125% on the next $250 million
0.10%on the next $250 million
0.075%on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may 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.
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, Donnelly & Meck, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
Performance Information
From time to time, the Trust advertises its 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
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Distributor
FEDERATED SECURITIES CORP.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Investment Adviser
FEDERATED RESEARCH CORP.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Custodian
STATE STREET BANK AND TRUST COMPANY
P.O. BOX 8600
BOSTON, MA 02266-8600
Transfer Agent and Dividend Disbursing Agent
FEDERATED SHAREHOLDER SERVICES COMPANY
P.O. BOX 8600
BOSTON, MA 02266-8600
Independent Auditors
DELOITTE & TOUCHE LLP
2500 ONE PPG PLACE
PITTSBURGH, PA 15222-5401
Federated Securities Corp., Distributor
Cusip 536319106
8050206A (5/97)
LIQUID CASH TRUST
Prospectus
May 31, 1997
An Open-End,
Management Investment Company
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, 1997. This Statement is
not a prospectus. You may request a copy of a prospectus or a paper copy of
this Statement of Additional Information, if you have received it
electronically, free of charge by calling 1-800-341-7400.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated May 31, 1997
Cusip 536319106
8050206B (5/97)
Table of Contents
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 Transactions1
Repurchase Agreements 1
Reverse Repurchase Agreements 2
Investment Limitations 2
Regulatory Compliance 3
Liquid Cash Trust Management 4
Trust Ownership 7
Trustees Compensation 8
Trustee Liability 8
Investment Advisory Services 8
Investment Adviser 8
Advisory Fees 9
Other Related Services 9
Brokerage Transactions 9
Other Services 9
Trust Administration 9
Custodian and Portfolio Accountant 9
Transfer Agent 9
Independent Auditors 10
Determining Net Asset Value 10
Shareholder Services 10
Redemption in Kind 10
Massachusetts Partnership Law 11
The Trust's Tax Status 11
Performance Information 11
Total Return 11
Yield 11
Effective Yield 11
Performance Comparisons 12
Economic and Market Information 12
About Federated Investors 12
Mutual Fund Market 12
Institutional Clients 13
Bank Marketing 13
Broker/Dealer and Bank Broker/Dealer
Subsidiaries 13
Appendix 14
Standard & Poor's Rating Group
Long-Term Debt Rating 14
Moody's Investors Service, Inc.
Long-Term Debt Rating 14
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. Section 566.1(h)) of the
Office of Thrift Supervision regulations. The above investment objective
and policies cannot be changed without approval of shareholders.
Bank Instruments
The Trust may invest more than $100,000 in savings accounts and in
certificates of deposits and other time deposits in Bank Insurance Fund-
insured banks and Savings Association Insurance Fund-insured institutions.
Investments in such accounts over $100,000 and the interest paid on these
investments are not insured.
Banker's 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
the prospectus and this Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of
and regulations under the Investment Company Act of 1940. In particular,
the Trust will comply with the various requirements of Rule 2a-7 which
regulates money market mutual funds. 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.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director,
Member of Executive Committee, University of Pittsburgh; Director or
Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Boca Grande Club
Boca Grande, FL
Birthdate: October 6, 1926
Trustee
Former Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director or
Trustee of the Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in the
Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board between meetings of
the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies: 111 Corcoran Funds; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Investment Portfolios; Federated Investment Trust; Federated Master Trust;
Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated
Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond Fund;
Federated U.S. Government Securities Fund: 1-3 Years; Federated U.S.
Government Securities Fund: 2-5 Years; Federated U.S. Government Securities
Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds; Fixed
Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Term Trust, Inc.-1999; Liberty U.S.
Government Money Market Trust; Liquid Cash Trust; Managed Series Trust;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The
Starburst Funds; The Starburst Funds II; The Virtus Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark 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 8, 1997, the following shareholders of record owned 5% or more of
the outstanding shares of the Trust: First Federal Savings and Loan,
Manchester, Connecticut, owned approximately 51,464,275 shares (11.09%),
Central Bank & Trust Company, Lexington, Kentucky, owned approximately
28,6000,000 shares (6.16%) and Dearborn Federal Credit Union, Dearborn,
Michigan, owned approximately 23,358,262 shares (5.03%).
Trustee Compensation
AGGREGATE
NAME,COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
Trust Trust* FROM FUND COMPLEX+
John F. Donahue $0 $0 for the Trust and
Chairman and Trustee 56 other investment companies in the
Fund Complex
Thomas G. Bigley $1,456.99 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John T. Conroy, Jr.$1,602.93 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
William J. Copeland$1,602.93 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
James E. Dowd $1,602.93 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Lawrence D. Ellis, M.D.$1,456.99 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Edward L. Flaherty, Jr.$1,602.93 $119,615 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Peter E. Madden $1,456.99 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Gregor F. Meyer $1,456.99 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
John E. Murray, Jr.$1,456.99 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Wesley W. Posvar $1,456.99 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
Marjorie P. Smuts $1,456.99 $108,725 for the Trust and
Trustee 56 other investment companies in the
Fund Complex
*Information is furnished for the fiscal year ended March 31, 1997.
+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, 1997, 1996, and 1995, the adviser earned $1,964,969,
$2,415,000, and $1,500,586, respectively, of which $1,896,759, $1,913,606,
and $1,444,401, respectively, were waived.
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.
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 years ended March 31, 1997, 1996, and
1995, the Trust paid no brokerage commissions.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Trust or
the size of the position obtained or disposed of by the Trust. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Trust.
Other Services
Trust Administration
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described
in the prospectus. From March 1, 1994, to March 1, 1996, Federated
Administrative Services, a subsidiary of Federated Investors, served as the
Trust's Administrator. For purposes of this Statement of Additional
Information, Federated Services Company and Federated Administrative
Services may hereinafter collectively be referred to as, the
`Administrators.'' For the fiscal years ended March 31, 1997, 1996, and
1995, the Administrators earned $371,211, $378,389, and $284,029,
respectively.
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.
Determining Net Asset Value
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Trust computed by dividing the annualized daily income on the
Trust's portfolio by the net asset value computed as above may tend to be
higher than a similar computation made by using a method of valuation based
upon market prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Trust's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
Shareholder Services
This arrangement permits the payment of fees to Federated Shareholder
Services 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, 1997, no payments were paid pursuant
to the Shareholder Services Agreement.
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, 1997, were 5.35%, 4.49%, and 6.03%,
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, 1997, was 5.58%.
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, 1997,
was 5.73%.
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 IBC/DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12-month-to-date investment results for the same
money funds.
o MONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust can
compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
Economic and Market Information
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Trust portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
About Federated Investors
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1996, Federated Investors managed
more than $50.3 billion in assets across 50 money market funds, including
18 government, 11 prime and 21 municipal with assets approximating $28.0
billion, $12.8 billion and $9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international and global portfolios.
Mutual Fund Market
Thirty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3.5 trillion to the more than 6,000
funds available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
Institutional Clients
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
Bank Marketing
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
Broker/Dealers and Bank Broker/Dealer Subsidiaries
Federated funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer
relationships across the country-supported by more wholesalers than any
other mutual fund distributor. Federated's service to financial
professionals and institutions has earned it high ratings in several
surveys performed by DALBAR, Inc. DALBAR is recognized as the industry
benchmark for service quality measurement. The marketing effort to these
firms is headed by James F. Getz, President, Federated Securities Corp.
*Source: Investment Company Institute.
Appendix
Standard & Poor's Ratings Group Long-Term Debt Ratings
AAA-Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A-Debt rated `A'' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
Moody's Investors Service, Inc. Long-Term Debt Ratings
AAA-Bonds which are rated AAA are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as `gilt edged.'' Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA-Bonds which are rated AA are judged to be of high quality by all
standards. Together with the AAA group, they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in AAA securities.
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
NR-Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to
securities rated A-1 or P-1.
NR(1)-The underlying issuer/obligor/guarantor has other outstanding debt
rated `AAA'' by S&P or ``AAA'' by Moody's.
NR(2)-The underlying issuer/obligor/guarantor has other outstanding debt
rated `AA'' by S&P or ``AA'' by Moody's.
NR(3)-The underlying issuer/obligor/guarantor has other outstanding debt
rated "A" by S&P or Moody's.
