1933 Act File No. 2-75122
1940 Act File No. 811-3337
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 23 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19 X
TAX-FREE INSTRUMENTS TRUST
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on May 31, 1994 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on May 16, 1994; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities pursuant
to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2(b)(2), need not file the Notice.
Copies to:
Thomas J. Donnelly, Esquire Charles H. Morin, Esquire
Houston, Houston & Donnelly Dickstein, Shapiro & Morin
2510 Centre City Tower 2101 L Street, N.W.
650 Smithfield Street Washington, D.C. 20037
Pittsburgh, Pennsylvania 15222
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of TAX-FREE INSTRUMENTS
TRUST which is comprised of two classes of shares: (1) Investment Shares
and (2) Institutional Service Shares, relates to both classes of shares and
is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-2) Cover Page.
Item 2. Synopsis (1-2) Summary of Trust Expenses.
Item 3. Condensed Financial
Information (1-2) Financial Highlights.
Item 4. General Description of
Registrant. (1-2) Performance Information; (1-2)
General Information; (1) Families of
Funds; (1) Liberty Family of Funds;
(1-2) Investment Information; (1-2)
Investment Objective; (1-2) Investment
Policies; (1-2) Municipal Securities;
(1-2) Standby Commitments; (1-2)
Investment Risks; (1-2) Investment
Limitations; (1-2) Other Classes of
Shares.
Item 5. Management of the Fund (1-2) Trust Information; (1-2)
Management of the Trust; (1)
Distribution of Investment Shares; (2)
Distribution of Institutional Shares
(1-2) Administration of the Trust; (2)
Expenses of the Trust and
Institutional Service Shares.
Item 6. Capital Stock and Other
Securities (1-2) Dividends; (1-2) Capital Gains;
(1-2) Shareholder Information; (1-2)
Voting Rights; (1-2) Massachusetts
Partnership Law; (1-2) Tax
Information; (1-2) Federal Income Tax;
(1-2) Pennsylvania Corporate and
Personal Property Taxes.
Item 7. Purchase of Securities Being
Offered (1-2) Net Asset Value; (1) Investing
in Investment Shares; (2) Investing in
Institutional Service Shares (1-2)
Share Purchases; (1-2) Minimum
Investment Required; (1-2) What Shares
Cost; (1) Systematic Investment
Program; (1-2) Certificates and
Confirmations; (1) Exchange Privilege;
(1) Requirements for Exchange; (1) Tax
Consequences; (1) Making an Exchange.
Item 8. Redemption or Repurchase (1) Redeeming Investment Shares; (2)
Redeeming Institutional Service Shares
(1-2) Through a Financial Institution;
(1-2) Directly From the Trust; (1)
Contingent Deferred Sales Charge; (1)
Systematic Withdrawal Program; (1-2)
Accounts With Low Balances.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page (1-2) Cover Page.
Item 11. Table of Contents (1-2) Table of Contents.
Item 12. General Information and
History (1-2) General Information About the
Trust.
Item 13. Investment Objectives and
Policies (1-2) Investment Objective and
Policies.
Item 14. Management of the Fund See Part A. Management of the Trust.
Item 15. Control Persons and Principal
Holders of Securities See Part A. Trust Ownership.
Item 16. Investment Advisory and Other
Services (1-2) Investment Advisory Services;
(1-2) Administrative Services; (1-2)
Shareholder Services Plan.
Item 17. Brokerage Allocation (1-2) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered (1-2) Purchasing Shares; (1-2)
Determining Net Asset Value; (1-2)
Redeeming Shares.
Item 20. Tax Status (1-2) Tax Status.
Item 21. Underwriters See Part A. (1) Distribution of
Investment Shares; (2) Distribution of
Institutional Service Shares.
Item 22. Calculations of Yield Quotations
of Money Market Funds (1-2) Yield; (1-2) Tax-Equivalent
Yield; (1-2) Effective Yield; (1-2)
Performance Comparisons.
Item 23. Financial Statements (1-2) Financial Statements
(Incorporated by reference to Annual
Report of Registrant dated March 31,
1994 (File No. 2-75122 and File No.
811-3337).
TAX-FREE INSTRUMENTS TRUST
INVESTMENT SHARES
PROSPECTUS
Investment Shares of Tax-Free Instruments Trust (the "Trust") represent
interests in a no-load, open-end, diversified management investment company (a
mutual fund) providing current income exempt from federal income tax consistent
with stability of principal by investing primarily in short-term municipal
securities.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
INVESTMENT SHARE; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO DO
SO.
THE INVESTMENT SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS
OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Investment Shares of the Trust. Keep this prospectus for future
reference.
The Trust has also filed a Combined Statement of Additional Information dated
May 31, 1994, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information free of charge by calling 1-800-235-4669. To obtain
other information or to make inquiries about the Trust, contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
FAMILIES OF FUNDS 3
- ------------------------------------------------------
Liberty Family of Funds 3
INVESTMENT INFORMATION 4
- ------------------------------------------------------
Investment Objective 4
Investment Policies 5
Acceptable Investments 5
Characteristics 5
Participation Interests 5
Variable Rate Municipal Securities 5
When-Issued and Delayed Delivery
Transactions 6
Temporary Investments 6
Municipal Securities 6
Standby Commitments 7
Regulatory Compliance 7
Investment Risks 7
Investment Limitations 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN INVESTMENT SHARES 8
- ------------------------------------------------------
Share Purchases 8
Through a Financial Institution 8
Directly From the Distributor 8
Individual Investors 8
Minimum Investment Required 9
What Shares Cost 9
Systematic Investment Program 9
Certificates and Confirmations 9
Dividends 9
Conversion to Federal Funds 9
Capital Gains 10
EXCHANGE PRIVILEGE 10
- ------------------------------------------------------
Requirements for Exchange 10
Tax Consequences 10
Making an Exchange 10
Telephone Instructions 10
REDEEMING INVESTMENT SHARES 11
- ------------------------------------------------------
Through a Financial Institution 11
Directly From the Trust 11
By Writing a Check 11
By Telephone 11
By Mail 12
Signatures 12
Contingent Deferred Sales Charge 12
Systematic Withdrawal Program 13
Accounts with Low Balances 13
TRUST INFORMATION 13
- ------------------------------------------------------
Management of the Trust 13
Board of Trustees 13
Officers and Trustees 13
Trustee Liability 17
Investment Adviser 17
Advisory Fees 17
Adviser's Background 17
Other Payments to Financial
Institutions 17
Distribution of Investment Shares 18
Administration of the Trust 18
Administrative Services 18
Shareholder Services Plan 18
Custodian 18
Transfer Agent and Dividend
Disbursing Agent 18
Legal Counsel 18
Independent Public Accountants 19
SHAREHOLDER INFORMATION 19
- ------------------------------------------------------
Voting Rights 19
Massachusetts Partnership Law 19
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
Pennsylvania Corporate and Personal
Property Taxes 20
PERFORMANCE INFORMATION 21
- ------------------------------------------------------
OTHER CLASSES OF SHARES 21
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 22
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES--INVESTMENT SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable) (1).............................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
ANNUAL INVESTMENT SHARES OPERATING EXPENSES
(As a percentage projected of average net assets)
<S> <C> <C>
Management Fee (after waiver) (2)........................................................................ 0.29%
12b-1 Fee................................................................................................ None
Total Other Expenses..................................................................................... 0.41%
Shareholder Services Fee (3)............................................................. 0.20%
Total Investment Shares Operating Expenses (4)................................................. 0.70%
</TABLE>
- ---------
(1)__ See "Contingent Deferred Sales Charge" on page 12.
(2) The estimated 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 0.50%.
(3) The maximum Shareholder Services Fee is 0.25%.
(4) The Total Investment Shares Operating Expenses in the table above are based
on expenses expected during the fiscal year ending March 31, 1995. The
Total Investment Shares Operating Expenses were 0.61% for the fiscal year
ended March 31, 1994, and were 0.75% 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 INVESTMENT SHARES OF THE
TRUST WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS
OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INVESTMENT SHARES" AND
"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 period..... $7 $22 $39 $87
</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.
The information set forth in the foregoing table and example relates only
to Investment Shares of the Trust. The Trust also offers another class of shares
called Institutional Service Shares. See "Other Classes of Shares".
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR AN INVESTMENT SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen & Co., the Trust's
independent public accountants. Their report, dated May 13, 1994, on the Trust's
Financial Statements for the year ended March 31, 1994, and on the following
table for each of the periods presented, is included in the Trust's Annual
Report dated March 31, 1994, which is incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------
INCOME FROM
INVESTMENT
OPERATIONS
- ---------------
Net investment
income 0.02 0.02 0.04 0.05 0.06 0.05 0.04 0.04 0.05 0.02
- --------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS
DISTRIBUTIONS
- ---------------
Dividends to
shareholders
from net
investment
income (0.02) (0.02) (0.04) (0.05) (0.06) (0.05) (0.04) (0.04) (0.05) (0.02)
- --------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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** 2.01% 2.42% 3.84% 5.40% 5.88% 5.28% 4.29% 3.84% 4.79% 1.28%
- ---------------
RATIOS TO
AVERAGE NET
ASSETS
- ---------------
Expenses 0.61% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%(a)
- ---------------
Net investment
income 2.00% 2.38% 3.73% 5.25% 5.73% 5.14% 4.19% 3.74% 4.70% 5.23%(a)
- ---------------
Expense
waiver/
reimbursement
(b) 0.14% 0.10% 0.11% 0.12% 0.11% 0.08% 0.06% 0.06% 0.07% 0.08%(a)
- ---------------
SUPPLEMENTAL
DATA
- ---------------
Net assets,
end of period
(000 omitted) $1,327,506 $1,619,531 $1,440,970 $1,214,045 $1,142,022 $1,313,391 $1,552,460 $1,661,086 $1,225,138 $1,046,591
- ---------------
<CAPTION>
<S> <C>
NOVEMBER 30,
1984
<S> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 1.00
- ---------------
INCOME FROM
INVESTMENT
OPERATIONS
- ---------------
Net investment
income 0.05
- --------------- -------------
LESS
DISTRIBUTIONS
- ---------------
Dividends to
shareholders
from net
investment
income (0.05)
- --------------- -------------
NET ASSET
VALUE, END OF
PERIOD $ 1.00
- --------------- -------------
TOTAL RETURN** 5.64%
- ---------------
RATIOS TO
AVERAGE NET
ASSETS
- ---------------
Expenses 0.54%
- ---------------
Net investment
income 5.56%
- ---------------
Expense
waiver/
reimbursement
(b) 0.13%
- ---------------
SUPPLEMENTAL
DATA
- ---------------
Net assets,
end of period
(000 omitted) $666,913
- ---------------
</TABLE>
* For the four month period ended March 31, 1985. The Trust changed its fiscal
year end from November 30 to March 31, effective March 31, 1985.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Trust's performance is contained in the Trust's
Annual Report, dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 17, 1981. The Trust's address is Liberty Center,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Declaration
of Trust permits the Trust to offer separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The shares
in any one portfolio may be offered in separate classes. With respect to the
Trust, as of the date of this prospectus, the Board of Trustees ("Trustees") has
established two classes of shares, known as Investment Shares and Institutional
Service Shares. This prospectus relates only to Investment Shares ("Shares") of
the Trust.
Shares of the Trust are designed for individuals to permit them to take
advantage of the economies and higher yields available to large investors such
as the Trust. A minimum initial investment of $500 is required. The Trust may
not be a suitable investment for retirement plans since it invests in municipal
securities.
The Trust attempts to stabilize the value of a Share at $1.00. Shares are
currently sold and redeemed at that price.
FAMILIES OF FUNDS
- --------------------------------------------------------------------------------
Shares of the Trust are a member of the Liberty Family of Funds. The Liberty
Family of Funds provides flexibility and diversification for an investor's
long-term investment planning. The Family enables an investor to meet the
challenges of changing market conditions by offering convenient exchange
privileges which give access to a number of investment vehicles and by providing
the investment services of a proven, professional investment adviser.
LIBERTY FAMILY OF FUNDS
The other funds in the Liberty Family of Funds are:
_ American Leaders Fund, Inc., providing growth of capital and income
through high-quality stocks;
_ Capital Growth Fund, providing appreciation of capital primarily through
equity securities;
_ Fund for U.S. Government Securities, Inc., providing current income
through long-term U.S. government securities;
_ International Equity Fund, providing long-term capital growth and income
through international securities;
_ International Income Fund, providing a high level of current income
consistent with prudent investment risk through high-quality debt
securities denominated primarily in foreign currencies;
_ Liberty Equity Income Fund, Inc., providing above-average income and
capital appreciation through income producing equity securities;
_ Liberty High Income Bond Fund, Inc., providing high current income
through high-yielding, lower-rated corporate bonds;
_ Liberty Municipal Securities Fund, Inc., providing a high level of
current income exempt from federal regular income tax through municipal
bonds;
_ Liberty U.S. Government Money Market Trust, providing current income
consistent with stability of principal through high-quality U.S.
government securities;
_ Liberty Utility Fund, Inc., providing current income and long-term growth
of income, primarily through electric, gas, and communications utilities;
_ Limited Term Fund, providing a high level of current income consistent
with minimum fluctuation in principal value through investment grade
securities;
_ Limited Term Municipal Fund, providing a high level of current income
exempt from federal regular income tax consistent with the preservation
of principal, primarily limited to municipal securities;
_ Michigan Intermediate Municipal Trust, providing current income exempt
from federal regular income tax and the personal income taxes imposed by
the state of Michigan and Michigan municipalities, primarily through
Michigan municipal securities;
_ Pennsylvania Municipal Income Fund, providing current income exempt from
federal regular income tax and the personal income taxes imposed by the
Commonwealth of Pennsylvania, primarily through Pennsylvania municipal
securities;
_ Strategic Income Fund, providing a high level of current income,
primarily through domestic and foreign corporate debt obligations; and
- World Utility Fund, providing total return through securities issued by
domestic and foreign companies in the utilities industries.
Prospectuses for these funds are available by writing to Federated Securities
Corp.
Each of the funds may also invest in certain other types of securities as
described in each fund's prospectus.
Shareholders participating in The Liberty Account are designated as Liberty Life
Members. Liberty Life Members are exempt from sales charges on future purchases
in and exchanges between any funds in the Liberty Family of Funds, as long as
they maintain a $500 balance in one of the Liberty Funds.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Trust is to provide current income which is
exempt from federal income tax (including alternative minimum tax) consistent
with stability of principal. Interest income of the Trust that is exempt from
federal income tax retains its tax-free status when distributed to the Trust's
shareholders. The Trust pursues its investment objective by investing in a
diversified portfolio of municipal securities as defined below, with remaining
maturities of thirteen months (397 days) or less at the time of purchase by the
Trust. The average maturities of these securities, computed on a dollar-weighted
basis, will be 90 days or less. While there is no assurance that the Trust will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus. The investment objective and
the policies and limitations described below cannot be changed without approval
of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The municipal securities in which the Trust invests
are:
debt obligations, issued by or on behalf of any state, territory, or
possession of the United States--including the District of Columbia--or
any political subdivision therein, from which the interest is, in the
opinion of bond counsel for the issuer or in the opinion of officers of
and/or the investment adviser to the Trust, exempt from Federal income
tax; and
participation interests, as described below, in any of the above
obligations.
CHARACTERISTICS. The municipal securities in which the Trust invests are:
rated within the two highest short-term municipal obligation rating
categories issued by Moody's Investors Service, Inc. (MIG-1/VMIG-1/P-1 or
MIG-2/VMIG-2/P-2), Standard & Poor's Corporation (A-1/SP-1 or A-2/SP-2),
or Fitch Investors Service, Inc. (F-1 or F-2); or
rated within the two highest long-term municipal obligation rating
categories issued by Moody's Investors Service, Inc. (Aaa or Aa), or
Standard & Poor's Corporation (AAA or AA), or Fitch Investors Service,
Inc. (AAA or AA); or
unrated and of high quality as determined by the Board of Trustees prior
to purchase by the Trust.
A description of the ratings categories is contained in the Appendix to the
Statement of Additional
Information.
PARTICIPATION INTERESTS. The Trust may purchase participation interests
from financial institutions such as commercial banks, savings and loan
associations, and insurance companies. These participation interests give
the Trust an undivided interest in municipal securities. The municipal
securities subject to the participation interests are not limited to
maturities of one year or less, so long as the participation interests
include the right to demand payment, typically within seven days, from the
issuers of those interests. The Trust will purchase only participation
interests which have such a demand feature. The financial institutions from
which the Trust purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Board of Trustees of the
Trust will determine that participation interests meet the prescribed
quality standards for the Trust.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which
the Trust purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate, interest rate
index, or some similar standard, such as the 91-day U.S. Treasury bill
rate. Many variable rate municipal securities are subject to payment of
principal on demand by the Trust (usually in not more than seven days)
which is considered in computing maturity. While some variable rate
municipal securities without this demand feature may not be considered
liquid by the Trust's adviser, the Trust's investment limitations provide
that it will not invest more than 10% of its total assets in illiquid
securities. All variable rate municipal securities
will meet the quality standards for the Trust. The investment adviser has
been instructed by the Trust's Board of Trustees to monitor the pricing,
quality, and liquidity of the variable rate municipal securities, including
participation interests, held by the Trust on the basis of published
financial information and reports of the rating agencies and other
analytical services.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
short-term municipal securities on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Trust relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Trust to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. The Trust invests its assets so that at least 80% of its
annual interest income is exempt from federal income tax (including alternative
minimum tax). However, from time to time on a temporary basis when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Trust may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: obligations issued
by or on behalf of municipal or corporate issuers having the same quality
characteristics as municipal securities purchased by the Trust; marketable
obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; repurchase agreements (arrangements in which the organization
selling the Trust a temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price); and prime commercial
paper rated A-1 by Standard & Poor's Corporation, Prime-1 by Moody's Investors
Service, Inc., or F-1 by Fitch Investors Service.
Although the Trust is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax.
MUNICIPAL SECURITIES
Municipal securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Municipal securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Trust
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Trust's option, for the amortized value of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Trust, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Trust. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased but may make such securities more difficult to sell without
such a commitment.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Trust
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Trust will 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.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Trust to achieve
its investment objective also depends on the continuing ability of the issuers
of municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due.
INVESTMENT LIMITATIONS
The Trust will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Trust sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Trust
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings;
- with respect to securities comprising 75% of its assets, invest more than
5% of its total assets in the securities of any one issuer;
- invest more than 5% of its total assets in securities of issuers (or in
the alternative, guarantors, where applicable) that have records of less
than three years of continuous operations; or
- commit more than 10% of its total assets to illiquid obligations,
including repurchase agreements maturing in more than seven days.
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 adding the interest of the Shares in the value
of all securities and other assets of the Trust, subtracting the interest of the
Shares in liabilities of the Trust and those attributable to Shares, and
dividing the remainder by the number of total Shares outstanding. The Trust, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN INVESTMENT SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the distributor, Federated Securities Corp. In
connection with the sale of Shares, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor. The
Trust reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Trust
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR
INDIVIDUAL INVESTORS. Shares may be purchased directly by mail or by wire
once an account has been established.
To purchase Shares by mail:
- complete and sign the new account form available from the Trust;
- enclose a check made payable to Tax-Free Instruments Trust--Investment
Shares; and
- mail both to Federated Services Company, P.O. Box 8604, Boston, MA
02266-8604.
Orders by mail are considered received after payment by check is converted by
the transfer agent's bank, State Street Bank and Trust Company ("State Street
Bank") into federal funds. This is generally the next business day after State
Street Bank receives the check.
To purchase Shares directly from the distributor by wire once an account has
been established, call the Trust. All information needed will be taken over the
telephone, and the order is considered received when State Street Bank receives
payment by wire. Federal funds should be wired as follows: Federated Services
Company, c/o State Street Bank and Trust Company, Boston, Massachusetts
02266-8604;
Attention: Mutual Fund Servicing Division; For Credit to: Tax-Free Instruments
Trust--Investment Shares; Title or Name of Account, Wire Order Number and/or
Account Number. Shares cannot be purchased by wire on Columbus Day, Veterans'
Day or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Trust is $500. Subsequent investments must
be in amounts of at least $100.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Trust.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 P.M.
(Eastern time), and 4:00 P.M. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Trust's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
SYSTEMATIC INVESTMENT PROGRAM
Once a Share account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Shares. A shareholder may apply for participation in this program
through his financial institution or directly from the Trust.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust or Federated Services Company in writing.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional Shares unless cash payments are
requested by contacting Federated Services Company. Shares purchased before 3:00
P.M. (Eastern time) earn dividends that day.
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
CAPITAL GAINS
Capital gains experienced by the Trust could result in an increase in dividends.
Capital losses could result in a decrease in dividends. If for some
extraordinary reason the Trust realizes net long-term capital gains, it will
distribute them at least once every 12 months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders may exchange all or some of their Shares for shares in other funds
in the Liberty Family of Funds. These exchanges are made at net asset value plus
the difference between the Trust's sales charge already paid and any sales
charge of the fund into which the Shares are to be exchanged, if higher. Neither
the Trust nor any of the funds in the Liberty Family of Funds imposes any
additional fees on exchanges. Participants in a plan under the Liberty Family
Retirement Program may exchange all or some of their Shares for Class A Shares
of other funds offered under the plan at net asset value.
REQUIREMENTS FOR EXCHANGE
Shareholders using this privilege must exchange Shares having a net asset value
equal to the value of the minimum investment required of the fund into which the
Shares are to be exchanged. Before the exchange, the shareholder must receive a
prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, Shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. The exchange privilege may be
terminated at any time. Shareholders will be notified of the termination of the
exchange privilege.
Further information on the exchange privilege and prospectuses for the Liberty
Family of Funds or certain Federated Funds are available by contacting the
Trust.
TAX CONSEQUENCES
An exercise of the exchange privilege is treated as a sale for federal income
tax purposes. Depending upon the circumstances, a capital gain or loss may be
realized.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing or by telephone. Written
instructions may require a signature guarantee. Shareholders of the Trust may
have difficulty in making exchanges by telephone through brokers and other
financial institutions during times of drastic economic or market changes. If a
shareholder cannot contact his broker or financial institution by telephone, it
is recommended that
an exchange request be made in writing and sent by overnight mail to Federated
Services Company,
P.O. Box 8604, Boston, Massachusetts, 02266-8604.
TELEPHONE INSTRUCTIONS. Telephone instructions made by the investor may be
carried out only if a telephone authorization form completed by the investor is
on file with the Trust. Telephone exchange instructions may be recorded. If the
instructions are given by a broker, a telephone authorization form completed by
the broker must be on file with the Trust. If reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. Shares may be exchanged between two funds by
telephone only if the two funds have identical shareholder registrations.
Any Shares held in certificate form cannot be exchanged by telephone but must be
forwarded to Federated Services Company, P.O. Box 8604, Boston, Massachusetts,
02266-8604 and deposited to the shareholder's account before being exchanged.
Telephone instructions will be processed as of 4:00 P.M. (Eastern time) and must
be received by the Trust before that time for shares to be exchanged the same
day. Shareholders exchanging into a fund will not receive any dividend that is
payable to shareholders of record on that date. This privilege may be modified
or terminated at any time.
REDEEMING INVESTMENT SHARES
- --------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemptions can be made through a
financial institution or directly from the Trust. Redemption requests must be
received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after the Trust receives the redemption
request from the financial institution. The financial institution is responsible
for promptly submitting redemption requests and providing proper written
redemption instructions to the Trust. The financial institution may charge
customary fees and commissions for this service.
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 should be considered.
DIRECTLY FROM THE TRUST
BY WRITING A CHECK. At the shareholder's request, Federated Services Company
will establish a checking account for redeeming Shares. The cost for providing
and processing checks will be $10.00 annually Liberty Life Members shall not be
subject to such fee. To obtain checks, contact the Trust.
With a Trust checking account, Shares may be redeemed simply by writing a check
for $100 or more. The redemption will be made at the net asset value on the date
that Federated Services Company presents the check to the Trust. A check may not
be written to close an account. In addition, if a shareholder wishes to redeem
Shares and have the proceeds available, a check may be written and negotiated
through the shareholder's bank. Checks should never be sent to State Street Bank
to redeem Shares. Cancelled checks are returned to the shareholder within 6 to 8
weeks.
BY TELEPHONE. Shareholders who have not purchased through a financial
institution may redeem their Shares by telephoning the Trust. Telephone
redemption instructions may be recorded. The proceeds will be mailed to the
shareholder's address of record or wire transferred to the shareholder's account
at a domestic commercial bank that is a member of the Federal Reserve System,
normally within one business day, but in no event longer than seven days after
the request, provided State Street Bank has received payment for Shares from the
shareholder. The minimum amount for a wire transfer is $1,000. If at any time
the Trust shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Telephone redemption instructions may be recorded.
Authorization forms and information on this service are available from Federated
Securities Corp. If reasonable procedures are not followed by the Trust, it may
be liable for loss due to unauthorized or fraudulent telephone instructions.
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
dividend.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts, 02266-8604.
The written request should include the shareholder's name, the Trust name and
class of shares name, the account number, and the Share or dollar amount
requested, and should be signed exactly as the Shares are registered. If Share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request. Shareholders should
call the Trust for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust will not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request, provided State Street Bank has received payment for Shares from the
shareholder.
CONTINGENT DEFERRED SALES CHARGE
Shareholders who purchased Shares with the proceeds of a redemption of shares of
a mutual fund sold with a sales charge and not distributed by Federated
Securities Corp. prior to June 1, 1994, will be charged a contingent deferred
sales charge by the Trust's distributor of .50 of 1% for redemptions made within
one year of purchase. Purchases under the program made after that date will not
be subject to any type of contingent deferred sales charge.
The contingent deferred sales charge will not be imposed in connection with
redemptions by the Trust of accounts with low balances or when a redemption
results from a return under the following circumstances: (i) a total or partial
distribution from a qualified plan, other than an IRA, Keogh Plan, or a
custodial account, following retirement; (ii) a total or partial distribution
from an IRA, Keogh Plan, or a custodial account, after the beneficial owner
attains age 59-1/2; or (iii) from the death or disability of the beneficial
owner. The exemption from the contingent deferred sales charge for qualified
plans, an IRA, Keogh Plan or custodial account does not extend to account
transfers, rollovers, and other redemptions made for purposes of reinvestment.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an ACH member. A shareholder may apply for
participation in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $500 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.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the
"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.
OFFICERS AND TRUSTEES. Officers and Trustees are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Management, Federated Investors, Federated Securities Corp., Federated
Services Company, Federated Administrative Services, and the Funds described in
the Combined Statement of Additional Information.
<TABLE>
<S> <C> <C>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Trustee Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President of the
Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John Wood and Associates, General Partner or Trustee in private real estate ventures
Inc., Realtors in Southwest Florida; Director, Trustee, or Managing
3255 Tamiami Trail North General Partner of the Funds; formerly, President, Naples
Naples, FL Property Management, Inc.
William J. Copeland Trustee Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Bank, N.A., and PNC Bank Corp and Director Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the
Concord, MA Funds; formerly, Director, Blue Cross of Massachusetts,
Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly President, State Street Bank
and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc. and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of
the Funds; President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council for Envi-
ronmental Policy & Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee,
4905 Bayard Street or Managing General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors and Federated
Federated Investors Tower Administrative Services; Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee,
Federated Services Company; President or Vice President of
the Funds; Director, Trustee, or Managing General Partner
of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.;
Pittsburgh, PA President or Vice President of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated In-
Federated Investors Tower and Treasurer vestors; Vice President and Treasurer, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Executive
Vice President, Treasurer, and Director, Federated
Securities Corp.; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee, Federated
Services Company; Trustee of some of the Funds; Vice
President and Treasurer of the Funds.
Glen R. Johnson President Trustee, Federated Investors, President and/or Trustee of
Federated Investors Tower some of the Funds; staff member, Federated Securities Corp.
Pittsburgh, PA and Federated Administrative Services.
John W. McGonigle Vice President Vice President, Secretary, General Counsel and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management and Federated
Research; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services,; Trustee, Federated
Service Company; Executive Vice President and Director,
Federated Securities Corp; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive
Federated Investors Tower Vice President, Federated Securities Corp.; President and
Pittsburgh, PA Trustee, Federated Advisers, Federated Management, and
Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance
Company and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
The Funds referred to above are set forth in the Combined Statement of
Additional Information.
TRUSTEE LIABILITY. The Trust's Declaration of Trust provides that the Trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management (the "Adviser"), the Trust's investment adviser, subject to direction
by the Trustees. The Adviser continually conducts investment research and
supervision for the Trust and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .50 of 1% of the Trust's average daily net assets. Under the
investment advisory contract which provides for voluntary reimbursement of
expenses by the Adviser, the Adviser will reimburse the Trust the amount,
limited to the amount of the advisory fee, by which the Trust's aggregate
annual operating expenses, including its investment advisory fee but
excluding interest, taxes, brokerage commissions, insurance premiums,
expenses of withholding taxes, and extraordinary expenses, exceed a certain
percentage of its average daily net assets. The Adviser can terminate this
voluntary reimbursement of expenses at any time at its sole discretion. The
Adviser has also undertaken to reimburse the Trust for operating expenses
in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Management, a Delaware business trust
organized on
April 11, 1989, 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 Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. _In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
Financial Institutions may be compensated by the adviser or its affiliates
for the continuing investment of customers' assets in certain funds,
including the Trust, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be
made from the assets of the Trust or by the assessment of a sales charge on
Shares.
DISTRIBUTION OF INVESTMENT SHARES
Federated Securities Corp. is the principal distributor for shares of the Trust.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. _Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of the Federated Funds as specified
below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. _The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Shares to obtain certain personal services
for shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. In
addition, Federated Shareholder Services will make supplemental payments to
financial institutions from its own assets at the annual rate of 0.25 of 1% of
the average daily net asset value of the shares held by each institutions'
customers. Financial institutions will receive fees based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Trust and
Federated Shareholder Services.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), P.O. Box
8604, Boston, Massachusetts 02266-8604, is custodian for the securities and cash
of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604 is transfer agent for the Shares of
the Trust, and dividend disbursing agent for the Trust.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Trust are Arthur Andersen & Co., 2100 One PPG Place, Pittsburgh, Pennsylvania
15222.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Trustee elections and other matters
submitted to shareholders for vote. All Shares of each portfolio or class in the
Trust have equal voting rights, except that only shares of that particular
portfolio or class are entitled to vote in matters affecting that portfolio or
class.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under certain
circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Trust that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide benefits to
private parties. The Trust may purchase all types of municipal bonds, including
private activity bonds. Thus, while the Trust has no present intention of
purchasing any private activity bonds, should it purchase any such bonds, a
portion of the Trust's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Trust representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to such
taxes if owned directly by residents of those jurisdictions.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its yield, effective yield and
tax-equivalent yield for Investment Shares.
The yield of Investment Shares represents the annualized rate of income earned
on an investment in Investment Shares over a seven-day period. It is the
annualized dividends earned during the period on the investment shown as a
percentage of the investment. The effective yield is calculated similarly to the
yield but, when annualized, the income earned by an investment in Investment
Shares 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. The tax-equivalent yield of Investment Shares is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
Investment Shares would have had to earn to equal its actual yield, assuming a
specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Investment Shares after reinvesting all income distributions.
It is calculated by dividing that change by the initial investment and is
expressed as a percentage.
Yield will be calculated separately for Investment Shares and Institutional
Service Shares. Because Investment Shares are subject to a shareholder services
fee, the yield for Institutional Service Shares, for the same period, may exceed
that of Investment Shares.
From time to time, the Trust may advertise the performance of Investment Shares
using certain financial publications and/or compare the performance of
Investment Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Institutional Service Shares, the other class of shares offered by the Trust,
are sold primarily to financial institutions. Investments in Institutional
Service Shares are subject to a minimum initial investment of $25,000.
The amount of dividends payable to Institutional Service Shares will generally
exceed that of Investment Shares by the difference between class expenses borne
by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
TAX-FREE INSTRUMENTS TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SERVICE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Arthur Andersen & Co., the Trust's
independent public accountants. Their report, dated May 13, 1994, on the Trust's
Financial Statements for the year ended March 31, 1994, and on the following
table for the period presented, is included in the Trust's Annual Report dated
March 31, 1994, which is incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.01
- --------------------------------------------------------------------------------------------- ---------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
- --------------------------------------------------------------------------------------------- ---------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------- ---------------------
TOTAL RETURN** 0.92%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.55%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 1.99%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.14%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted) $390,453
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from October 15, 1993 (date of initial
public offering) to March 31, 1994.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Trust's performance is contained in the Annual
Report, dated March 31, 1994, which can be obtained free of charge.
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
TAX-FREE
INSTRUMENTS TRUST
INVESTMENT SHARES
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
Prospectus dated May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8062810A-IV (5/94)
TAX-FREE INSTRUMENTS TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
Institutional Service Shares of Tax-Free Instruments Trust (the "Trust")
represent interests in a no-load, open-end, diversified management investment
company (a mutual fund) providing current income exempt from federal income tax
consistent with stability of principal by investing primarily in short-term
municipal securities.
AN INVESTMENT IN THE TRUST IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
INSTITUTIONAL SERVICE SHARE; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE
ABLE TO DO SO.
THE INSTITUTIONAL SERVICE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in Institutional Service Shares of the Trust. Keep this prospectus for
future reference.
The Trust has also filed a Combined Statement of Additional Information dated
May 31, 1994, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Combined Statement
of Additional Information free of charge by calling 1-800-235-4669. To obtain
other information or to make inquiries about the Trust contact your financial
institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated May 31, 1994.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF TRUST EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INSTITUTIONAL SERVICE SHARES 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Characteristics 4
Participation Interests 4
Variable Rate Municipal Securities 4
When-Issued and Delayed Delivery
Transactions 4
Temporary Investments 4
Municipal Securities 5
Standby Commitments 5
Regulatory Compliance 6
Investment Risks 6
Investment Limitations 6
NET ASSET VALUE 6
- ------------------------------------------------------
INVESTING IN INSTITUTIONAL SERVICE SHARES 7
- ------------------------------------------------------
Share Purchases 7
Through a Financial Institution 7
Institutional Investors 7
Minimum Investment Required 7
What Shares Cost 7
Certificates and Confirmations 8
Dividends 8
Conversion to Federal Funds 8
Capital Gains 8
REDEEMING INSTITUTIONAL SERVICE SHARES 8
- ------------------------------------------------------
Through a Financial Institution 8
Directly From the Trust 9
By Telephone 9
By Mail 9
Signatures 9
Accounts with Low Balances 10
TRUST INFORMATION 10
- ------------------------------------------------------
Management of the Trust 10
Board of Trustees 10
Officers and Trustees 10
Trustee Liability 14
Investment Adviser 14
Advisory Fees 14
Adviser's Background 14
Other Payments to Financial
Institutions 14
Distribution of Institutional Service Shares 15
Administration of the Trust 15
Administrative Services 15
Shareholder Services Plan 15
Custodian 15
Transfer Agent and Dividend
Disbursing Agent 15
Legal Counsel 15
Independent Public Accountants 16
Expenses of the Trust
and Institutional Service Shares 16
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights 16
Massachusetts Partnership Law 16
TAX INFORMATION 17
- ------------------------------------------------------
Federal Income Tax 17
Pennsylvania Corporate and Personal
Property Taxes 18
PERFORMANCE INFORMATION 18
- ------------------------------------------------------
OTHER CLASSES OF SHARES 19
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS--
INVESTMENT SHARES
- ------------------------------------------------------
SUMMARY OF TRUST EXPENSES--
INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds as applicable).................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................................... None
Exchange Fee............................................................................................ None
ANNUAL INSTITUTIONAL SERVICE SHARES OPERATING EXPENSES
(As a percentage projected of average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)....................................................................... 0.29%
12b-1 Fee............................................................................................... None
Total Other Expenses.................................................................................... 0.26%
Shareholder Services Fee (2)............................................................ 0.05%
Total Institutional Service Shares Operating Expenses (3)..................................... 0.55%
</TABLE>
- ---------
(1) The estimated 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 0.50%.
(2) The maximum Shareholder Services Fee is 0.25%.
(3) The Total Institutional Service Shares Operating Expenses in the table
above are based on expenses expected during the fiscal year ending March
31, 1995. The Total Institutional Service Shares Operating Expenses were
0.55% for the fiscal year ended March 31, 1994, and were 0.69% 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 INSTITUTIONAL SERVICE
SHARES OF THE TRUST WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE
DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "INVESTING IN INSTITUTIONAL
SERVICE SHARES" AND "TRUST INFORMATION." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <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 period..................................................... $6 $18
</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.
The information set forth in the foregoing table and example relates only
to Institutional Service Shares of the Trust. The Trust also offers another
class of shares called Investment Shares. See "Other Classes of Shares."
TAX-FREE INSTRUMENTS TRUST
FINANCIAL HIGHLIGHTS--INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
(FOR AN INSTITUTIONAL SERVICE SHARE OUTSTANDING THROUGHOUT THE PERIOD)
The following table has been audited by Arthur Andersen & Co., the Trust's
independent public accountants. Their report, dated May 13, 1994, on the Trust's
Financial Statements for the year ended March 31, 1994, and on the following
table for the period presented, is included in the Trust's Annual Report dated
March 31, 1994, which is incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31, 1994*
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
- ---------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------
Net investment income 0.01
- --------------------------------------------------------------------------------------------- ---------------------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------------------------------------
Dividends to shareholders from net investment income (0.01)
- --------------------------------------------------------------------------------------------- ---------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
- --------------------------------------------------------------------------------------------- ---------------------
TOTAL RETURN** 0.92%
- ---------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------------------------------------
Expenses 0.55%(a)
- ---------------------------------------------------------------------------------------------
Net investment income 1.99%(a)
- ---------------------------------------------------------------------------------------------
Expense waiver/reimbursement (b) 0.14%(a)
- ---------------------------------------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000 omitted)
$390,453
- ---------------------------------------------------------------------------------------------
</TABLE>
* Reflects operations for the period from October 15, 1993 (date of initial
public offering) to March 31, 1994.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Trust's performance is contained in the Trust's
Annual Report, dated March 31, 1994, which can be obtained free of charge.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 17, 1981. The Trust's address is Liberty Center,
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779. The Declaration
of Trust permits the Trust to offer separate series of shares of beneficial
interest representing interests in separate portfolios of securities. The shares
in any one portfolio may be offered in separate classes. With respect to the
Trust, as of the date of this prospectus, the Board of Trustees ("Trustees") has
established two classes of shares, known as Institutional Service Shares and
Investment Shares. This prospectus relates only to Institutional Service Shares
("Shares") of the Trust.
Shares of the Trust are designed for individuals, institutions, and fiduciaries
to permit shareholders to take advantage of the economies and higher yields
available to large investors such as the Trust. A minimum initial investment of
$25,000 is required. The Trust may not be a suitable investment for retirement
plans since it invests in municipal securities.
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 to provide current income which is
exempt from federal income tax (including alternative minimum tax) consistent
with stability of principal. Interest income of the Trust that is exempt from
federal income tax retains its tax-free status when distributed to the Trust's
shareholders. The Trust pursues its investment objective by investing in a
diversified portfolio of municipal securities as defined below, with remaining
maturities of thirteen months (397 days) or less at the time of purchase by the
Trust. The average maturities of these securities, computed on a dollar-weighted
basis, will be 90 days or less. While there is no assurance that the Trust will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus. The investment objective and
the policies and limitations described below cannot be changed without approval
of shareholders.
INVESTMENT POLICIES
ACCEPTABLE INVESTMENTS. The municipal securities in which the Trust invests
are:
- debt obligations, issued by or on behalf of any state, territory, or
possession of the United States--including the District of Columbia--or
any political subdivision therein, from which the interest is, in the
opinion of bond counsel for the issuer or in the opinion of officers of
and/or the investment adviser to the Trust, exempt from Federal income
tax; and
- participation interests, as described below, in any of the above
obligations.
CHARACTERISTICS. The municipal securities in which the Trust invests are:
- rated within the two highest short-term municipal obligation rating
categories issued by Moody's Investors Service, Inc. (MIG-1/VMIG-1/P-1 or
MIG-2/VMIG-2/P-2), Standard & Poor's Corporation (A-1/SP-1 or A-2/SP-2),
or Fitch Investors Service, Inc. (F-1 or F-2); or
- rated within the two highest long-term municipal obligation rating
categories issued by Moody's Investors Service, Inc. (Aaa or Aa), or
Standard & Poor's Corporation (AAA or AA), or Fitch Investors Service,
Inc. (AAA or AA); or
- unrated and of high quality as determined by the Board of Trustees prior
to purchase by the Trust.
A description of the ratings categories is contained in the Appendix to the
Statement of Additional
Information.
PARTICIPATION INTERESTS. The Trust may purchase participation interests
from financial institutions such as commercial banks, savings and loan
associations, and insurance companies. These participation interests give
the Trust an undivided interest in municipal securities. The municipal
securities subject to the participation interests are not limited to
maturities of one year or less, so long as the participation interests
include the right to demand payment, typically within seven days, from the
issuers of those interests. The Trust will purchase only participation
interests which have such a demand feature. The financial institutions from
which the Trust purchases participation interests frequently provide or
secure irrevocable letters of credit or guarantees to assure that the
participation interests are of high quality. The Board of Trustees of the
Trust will determine that participation interests meet the prescribed
quality standards for the Trust.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the municipal securities which
the Trust purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate, interest rate
index, or some similar standard, such as the 91-day U.S. Treasury bill
rate. Many variable rate municipal securities are subject to payment of
principal on demand by the Trust (usually in not more than seven days)
which is considered in computing maturity. While some variable rate
municipal securities without this demand feature may not be considered
liquid by the Trust's adviser, the Trust's investment limitations provide
that it will not invest more than 10% of its total assets in illiquid
securities. All variable rate municipal securities will meet the quality
standards for the Trust. The investment adviser has been instructed by the
Trust's Board of Trustees to monitor the pricing, quality, and liquidity of
the variable rate municipal securities, including participation interests,
held by the Trust on the basis of published financial information and
reports of the rating agencies and other analytical services.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
short-term municipal securities on a when-issued or delayed delivery basis. In
when-issued and delayed delivery transactions, the Trust relies on the seller to
complete the transaction. The seller's failure to complete the transaction may
cause the Trust to miss a price or yield considered to be advantageous.
TEMPORARY INVESTMENTS. The Trust invests its assets so that at least 80% of its
annual interest income is exempt from federal income tax (including alternative
minimum tax). However, from time to time on a temporary basis when the
investment adviser determines that market conditions call for a
temporary defensive posture, the Trust may invest in short-term tax-exempt or
taxable temporary investments. These temporary investments include: obligations
issued by or on behalf of municipal or corporate issuers having the same quality
characteristics as municipal securities purchased by the Trust; marketable
obligations issued or guaranteed by the U.S. government, its agencies, or
instrumentalities; repurchase agreements (arrangements in which the organization
selling the Trust a temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price); and prime commercial
paper rated A-1 by Standard & Poor's Corporation, Prime-1 by Moody's Investors
Service, Inc., or F-1 by Fitch Investors Service.
Although the Trust is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax.
MUNICIPAL SECURITIES
Municipal securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are also issued to repay
outstanding obligations, to raise funds for general operating expenses, and to
make loans to other public institutions and facilities.
Municipal securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
STANDBY COMMITMENTS
Some securities dealers are willing to sell municipal securities to the Trust
accompanied by their commitments to repurchase the municipal securities prior to
maturity, at the Trust's option, for the amortized value of the municipal
securities at the time of repurchase. These arrangements are not used to protect
against changes in the market value of municipal securities. They permit the
Trust, however, to remain fully invested and still provide liquidity to satisfy
redemptions. The cost of municipal securities accompanied by these "standby"
commitments could be greater than the cost of municipal securities without such
commitments. Standby commitments are not marketable or otherwise assignable and
have value only to the Trust. The default or bankruptcy of a securities dealer
giving such a commitment would not affect the quality of the municipal
securities purchased but may make such securities more difficult to sell without
such a commitment.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, the Trust
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Trust will 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.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Trust to achieve
its investment objective also depends on the continuing ability of the issuers
of municipal securities and participation interests, or the guarantors of
either, to meet their obligations for the payment of interest and principal when
due.
INVESTMENT LIMITATIONS
The Trust will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Trust sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Trust
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings;
- with respect to securities comprising 75% of its assets, invest more than
5% of its total assets in the securities of any one issuer;
- invest more than 5% of its total assets in securities of issuers (or in
the alternative, guarantors, where applicable) that have records of less
than three years of continuous operations; or
- commit more than 10% of its total assets to illiquid obligations,
including repurchase agreements maturing in more than seven days.
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 adding the interest of the Shares in the value
of all securities and other assets of the Trust, subtracting the interest of the
Shares in liabilities of the Trust and those attributable to Shares, and
dividing the remainder by the total number of Shares outstanding. The Trust, of
course, cannot guarantee that its net asset value will always remain at $1.00
per Share.
INVESTING IN INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares are sold on days on which the New York Stock Exchange is open. Shares may
be purchased through a financial institution which has a sales agreement with
the distributor or directly from the distributor, Federated Securities Corp. In
connection with the sale of Shares, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor. The
Trust reserves the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase Shares.
Orders through a financial institution are considered received when the Trust
receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's responsibility
to transmit orders promptly.
INSTITUTIONAL INVESTORS. Institutions should open an account by calling
Federated Securities Corp. to obtain a master account number. Information needed
to establish the account will be taken over the telephone.
To place an order, institutions should call the Trust. The order is considered
received immediately. Payment by federal funds must be received before the close
of business on the same day as the order. Federal funds should be wired as
follows: State Street Bank and Trust Company, Boston, Massachusetts; Attention:
EDGEWIRE; For Credit to: Tax-Free Instruments Trust--Institutional Service
Shares; Fund Number 295; Group Number or Order Number; Nominee or Institution
Name; ABA Number 011000028.
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent may
charge a fee based on the level of subaccounting services rendered. Institutions
holding Trust shares in a fiduciary, agency, custodial, or similar capacity may
charge or pass through subaccounting fees as part of or in addition to normal
trust or agency account fees. They may also charge fees for other services
provided which may be related to the ownership of Trust shares. This prospectus
should, therefore, be read together with any agreement between the customer and
the institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in Shares is $25,000. There is no minimum for
subsequent investments.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Trust.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 P.M.
(Eastern time), and 4:00 P.M. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Trust's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; and (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Trust, Federated Services Company maintains a Share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Trust or Federated Services Company in writing.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional Shares unless cash payments are
requested by contacting Federated Services Company. Shares purchased before 3:00
P.M. (Eastern time) earn dividends that day.
CONVERSION TO FEDERAL FUNDS
It is the Trust's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
CAPITAL GAINS
Capital gains experienced by the Trust could result in an increase in dividends.
Capital losses could result in a decrease in dividends. If for some
extraordinary reason the Trust realizes net long-term capital gains, it will
distribute them at least once every 12 months.
REDEEMING INSTITUTIONAL SERVICE SHARES
- --------------------------------------------------------------------------------
The Trust redeems Shares at their net asset value next determined after the
Trust receives the redemption request. Redemptions will be made on days on which
the Trust computes its net asset value. Redemptions can be made through a
financial institution or directly from the Trust. Redemption requests must be
received in proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem Shares by calling his financial institution (such as a
bank or an investment dealer) to request the redemption. Shares will be redeemed
at the net asset value next determined after the Trust receives the redemption
request from the financial institution. The financial institution is responsible
for promptly submitting redemption requests and providing proper written
redemption instructions to the Trust. The financial institution may charge
customary fees and commissions for this service.
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 should be considered.
DIRECTLY FROM THE TRUST
BY TELEPHONE. Shareholders may redeem their Shares by telephoning the Trust.
Telephone redemption instructions may be recorded. The proceeds will be mailed
to the shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal Reserve
System, normally within one business day, but in no event longer than seven days
after the request, provided State Street Bank has received payment for Shares
from the Shareholder. The minimum amount for a wire transfer is $1,000. If at
any time the Trust shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
An authorization form permitting the Trust to accept telephone requests must
first be completed. Telephone redemption instructions may be recorded.
Authorization forms and information on this service are available from Federated
Securities Corp. If reasonable procedures are not followed by the Trust, it may
be liable for loss due to unauthorized or fraudulent telephone instructions.
A daily dividend will be paid on Shares redeemed if the redemption request is
received after
12:00 noon (Eastern time). However, the proceeds are not wired until the
following business day. Redemption requests received before 12:00 noon (Eastern
time) will be paid the same day but will not be entitled to that day's dividend.
BY MAIL. Any shareholder may redeem Shares by sending a written request to
Federated Services Company, P.O. Box 8604, Boston, Massachusetts 02266-8604. The
written request should include the shareholder's name, the Trust name and class
of shares name, the account number, and the Share or dollar amount requested,
and should be signed exactly as the Shares are registered. If Share certificates
have been issued, they must be properly endorsed and should be sent by
registered or certified mail with the written request. Shareholders should call
the Trust for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on record with
the Trust, or a redemption payable other than to the shareholder of record must
have signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Trust will not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request, provided State Street Bank has received payment for Shares from the
Shareholder.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Trust may
redeem Shares in any account and pay the proceeds to the shareholder if the
account balance falls below the 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.
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the
"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.
OFFICERS AND TRUSTEES. Officers and Trustees are listed with their addresses,
principal occupations, and present positions, including any affiliation with
Federated Management, Federated Investors, Federated Securities Corp., Federated
Services Company, Federated Administrative Services, and the Funds described in
the Combined Statement of Additional Information.
<TABLE>
<S> <C> <C>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and
Federated Investors Tower Trustee Trustee, Federated Advisers, Federated Management, and
Pittsburgh, PA Federated Research; Director, AEtna Life and Casualty
Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President of the
Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John Wood and Associates, General Partner or Trustee in private real estate ventures
Inc., Realtors in Southwest Florida; Director, Trustee, or Managing
3255 Tamiami Trail North General Partner of the Funds; formerly, President, Naples
Naples, FL Property Management, Inc.
William J. Copeland Trustee Director and Member of the Executive Committee, Michael
One PNC Plaza-- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Bank, N.A., and PNC Bank Corp and Director Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the
Concord, MA Funds; formerly, Director, Blue Cross of Massachusetts,
Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and
Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds.
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc. and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of
225 Franklin Street Massachusetts; Director, Trustee, or Managing General
Boston, MA Partner of the Funds; formerly President, State Street Bank
and Trust Company and State Street Boston Corporation and
Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of
the Funds; President Emeritus, University of Pittsburgh,
formerly, Chairman, National Advisory Council for Envi-
ronmental Policy & Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee,
4905 Bayard Street or Managing General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors and Federated
Federated Investors Tower Administrative Services; Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee,
Federated Services Company; President or Vice President of
the Funds; Director, Trustee, or Managing General Partner
of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors;
Federated Investors Tower Chairman and Director, Federated Securities Corp.;
Pittsburgh, PA President or Vice President of the Funds; Director or
Trustee of some of the Funds.
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated In-
Federated Investors Tower and Treasurer vestors; Vice President and Treasurer, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Executive
Vice President, Treasurer, and Director, Federated
Securities Corp.; Chairman, Treasurer, and Trustee,
Federated Administrative Services; Trustee, Federated
Services Company; Trustee of some of the Funds; Vice
President and Treasurer of the Funds.
Glen R. Johnson President Trustee, Federated Investors, President and/or Trustee of
Federated Investors Tower some of the Funds; staff member, Federated Securities Corp.
Pittsburgh, PA and Federated Administrative Services, Inc.
John W. McGonigle Vice President Vice President, Secretary, General Counsel and Trustee,
Federated Investors Tower and Secretary Federated Investors; Vice President, Secretary and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management and Federated
Research; Executive Vice President, Secretary, and Trustee,
Federated Administrative Services; Trustee, Federated
Services Company; Executive Vice President and Director,
Federated Securities Corp; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive
Federated Investors Tower Vice President, Federated Securities Corp.; President and
Pittsburgh, PA Trustee, Federated Advisers, Federated Management, and
Federated Research; Vice President of the Funds; Director,
Trustee, or Managing General Partner of some of the Funds;
formerly, Vice President, The Standard Fire Insurance
Company and President of its Federated Research Division.
</TABLE>
*This Trustee is deemed to be an "interested person" of the Trust as
defined in the Investment Company Act of 1940, as amended.
\Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
The Funds referred to above are set forth in the Combined Statement of
Additional Information.
TRUSTEE LIABILITY. The Trust's Declaration of Trust provides that the Trustees
will not be liable for errors of judgment or mistakes of fact or law. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Management (the "Adviser"), the Trust's investment adviser, subject to direction
by the Trustees. The Adviser continually conducts investment research and
supervision for the Trust and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Trust.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to .50 of 1% of the Trust's average daily net assets. Under the
investment advisory contract which provides for voluntary reimbursement of
expenses by the Adviser, the Adviser will reimburse the Trust the amount,
limited to the amount of the advisory fee, by which the Trust's aggregate
annual operating expenses, including its investment advisory fee but
excluding interest, taxes, brokerage commissions, insurance premiums,
expenses of withholding taxes, and extraordinary expenses, exceed a certain
percentage of its average daily net assets. The Adviser can terminate this
voluntary reimbursement of expenses at any time at its sole discretion. The
Adviser has also undertaken to reimburse the Trust for operating expenses
in excess of limitations established by certain states.
ADVISER'S BACKGROUND. _Federated Management, a Delaware business trust
organized on
April 11, 1989, 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 Management and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined, risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments
to financial institutions under the Shareholder Services Plan, certain
Financial Institutions may be compensated by the adviser or its affiliates
for the continuing investment of customers' assets in certain funds,
including the Trust, advised by those entities. These payments will be made
directly by the distributor or adviser from their assets, and will not be
made from the assets of the Trust or by the assessment of a sales charge on
Shares.
DISTRIBUTION OF INSTITUTIONAL SERVICE SHARES
Federated Securities Corp. is the principal distributor for Shares of the Trust.
Federated Securities Corp. is located at Federated Investors Tower, Pittsburgh,
Pennsylvania 15222-3779. It is a Pennsylvania corporation organized on November
14, 1969, and is the principal distributor for a number of investment companies.
Federated Securities Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of all funds advised by subsidiaries
of Federated Investors ("Federated Funds") as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075% of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
SHAREHOLDER SERVICES PLAN. _The Trust has adopted a Shareholder Services Plan
(the "Services Plan") under which it may make payments up to 0.25 of 1% of the
average daily net asset value of the Shares to obtain certain personal services
for shareholders and the maintenance of shareholder accounts ("shareholder
services"). The Trust has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, under which
Federated Shareholder Services will either perform shareholder services directly
or will select financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will be
paid will be determined from time to time by the Trust and Federated Shareholder
Services.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), P.O. Box
8604, Boston, Massachusetts 02266-8604, is custodian for the securities and cash
of the Trust.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. _Federated Services Company, P.O.
Box 8604, Boston, Massachusetts 02266-8604, is transfer agent for the Shares of
the Trust, and dividend disbursing agent for the Trust.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly, 2510
Centre City Tower, Pittsburgh, Pennsylvania 15222, and Dickstein, Shapiro &
Morin, 2101 L Street, N.W., Washington, D.C. 20037.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Trust are Arthur Andersen & Co., 2100 One PPG Place, Pittsburgh, Pennsylvania
15222.
EXPENSES OF THE TRUST AND INSTITUTIONAL SERVICE SHARES
Holders of Shares pay their allocable portion of Trust and portfolio expenses.
The Trust expenses for which holders of Shares pay their allocable portion
include, but are not limited to: the cost of organizing the Trust and continuing
its existence; registering the Trust with federal and state securities
authorities; Trustees' fees; auditors' fees; the cost of meeting of Trustees;
legal fees of the Trust; investment advisory services; taxes and commissions;
custodian fees; insurance premiums; association membership dues; and such
non-recurring and extraordinary items as may arise from time to time.
The Trustees reserve the right to allocate certain other expenses to holders of
Shares as it deems appropriate ("Class Expenses"). In any case, Class Expenses
would be limited to: distribution fees; transfer agent fees as identified by the
transfer agent as attributable to holders of Shares; printing and postage
expenses related to preparing and distributing materials such as shareholder
reports, prospectuses and proxies to current shareholders; registration fees
paid to the Securities and Exchange Commission and registration fees paid to
state securities commissions; expenses related to administrative personnel and
services as required to support holders of Shares; legal fees relating solely to
Shares; and Trustees' fees incurred as a result of issues relating solely to
Shares.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each Share gives the shareholder one vote in Trustee elections and other matters
submitted to shareholders for vote. All shares of each portfolio or class in the
Trust have equal voting rights, except that only shares of that particular
portfolio or class are entitled to vote in matters affecting that portfolio or
class.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's operation and for the election of Trustees under certain
circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the Trust shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust itself cannot meet its obligations to indemnify shareholders
and pay judgments against them.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Trust that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, equal up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income of the taxpayer increased by certain "tax preference"
items not included in regular taxable income and reduced by only a portion of
the deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item. Unlike traditional
governmental purpose municipal bonds, which finance roads, schools, libraries,
prisons, and other public facilities, private activity bonds provide benefits to
private parties. The Trust may purchase all types of municipal bonds, including
private activity bonds. Thus, while the Trust has no present intention of
purchasing any private activity bonds, should it purchase any such bonds, a
portion of the Trust's dividends may be treated as a tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds may be subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Trust representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Trust:
the Trust is not subject to Pennsylvania corporate or personal property
taxes; and
Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to such
taxes if owned directly by residents of those jurisdictions.
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Trust advertises its yield, effective yield and
tax-equivalent yield for Institutional Service Shares.
The yield of Institutional Service Shares represents the annualized rate of
income earned on an investment in Institutional Service Shares over a seven-day
period. It is the annualized dividends earned during the period on the
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield but, when annualized, the income earned by an
investment in Institutional Service Shares 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. The tax-equivalent yield of
Institutional Service Shares is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that Institutional Service Shares would
have had to earn to equal its actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in Institutional Service Shares after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
Yield will be calculated separately for Institutional Service Shares and
Investment Shares. Because Investment Shares are subject to a shareholder
services fee, the yield for Institutional Service Shares, for the same period,
may exceed that of Investment Shares.
From time to time, the Trust may advertise the performance of Institutional
Service Shares using certain financial publications and/or compare the
performance of Institutional Service Shares to certain indices.
OTHER CLASSES OF SHARES
- --------------------------------------------------------------------------------
Investment Shares, the other class of shares offered by the Trust, are sold
through brokers and dealers. Shares are subject to a minimum initial investment
of $500.
The amount of dividends payable to Institutional Service Shares will generally
exceed that of Investment Shares by the difference between class expenses and
shareholder expenses borne by shares of each respective class.
The stated advisory fee is the same for both classes of shares.
FINANCIAL HIGHLIGHTS--INVESTMENT SHARES
- --------------------------------------------------------------------------------
(FOR AN INVESTMENT SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by Arthur Andersen & Co., the Trust's
independent public accountants. Their report, dated May 13, 1994, on the Trust's
Financial Statements for the year ended March 31, 1994, and on the following
table for each of the periods presented, is included in the Trust's Annual
Report dated March 31, 1994, which is incorporated herein by reference.
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985*
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------
INCOME FROM
INVESTMENT
OPERATIONS
- ---------------
Net investment
income 0.02 0.02 0.04 0.05 0.06 0.05 0.04 0.04 0.05 0.02
- --------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
LESS
DISTRIBUTIONS
- ---------------
Dividends to
shareholders
from net
investment
income (0.02) (0.02) (0.04) (0.05) (0.06) (0.05) (0.04) (0.04) (0.05) (0.02)
- --------------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
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** 2.01% 2.42% 3.84% 5.40% 5.88% 5.28% 4.29% 3.84% 4.79% 1.28%
- ---------------
RATIOS TO
AVERAGE NET
ASSETS
- ---------------
Expenses 0.61% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55% 0.55%(a)
- ---------------
Net investment
income 2.00% 2.38% 3.73% 5.25% 5.73% 5.14% 4.19% 3.74% 4.70% 5.23%(a)
- ---------------
Expense
waiver/
reimbursement
(b) 0.14% 0.10% 0.11% 0.12% 0.11% 0.08% 0.06% 0.06% 0.07% 0.08%(a)
- ---------------
SUPPLEMENTAL
DATA
- ---------------
Net assets,
end of period
(000 omitted) $1,327,506 $1,619,531 $1,440,970 $1,214,045 $1,142,022 $1,313,391 $1,552,460 $1,661,086 $1,225,138 $1,046,591
- ---------------
<CAPTION>
<S> <C>
NOVEMBER 30,
1984
NET ASSET
VALUE,
BEGINNING OF
PERIOD $ 1.00
- ---------------
INCOME FROM
INVESTMENT
OPERATIONS
- ---------------
Net investment
income 0.05
- --------------- -------------
LESS
DISTRIBUTIONS
- ---------------
Dividends to
shareholders
from net
investment
income (0.05)
- --------------- -------------
NET ASSET
VALUE, END OF
PERIOD $ 1.00
- --------------- -------------
TOTAL RETURN** 5.64%
- ---------------
RATIOS TO
AVERAGE NET
ASSETS
- ---------------
Expenses 0.54%
- ---------------
Net investment
income 5.56%
- ---------------
Expense
waiver/
reimbursement
(b) 0.13%
- ---------------
SUPPLEMENTAL
DATA
- ---------------
Net assets,
end of period
(000 omitted) $666,913
- ---------------
</TABLE>
* For the four month period ended March 31, 1985. The Trust changed its fiscal
year end from November 30 to March 31, effective March 31, 1985.
** Based on net asset value which does not reflect the sales load or contingent
deferred sales charge, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Trust's performance is contained in the Trust's
Annual Report, dated March 31, 1994, which can be obtained free of charge.
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TAX-FREE
INSTRUMENTS TRUST
INSTITUTIONAL SERVICE SHARES
PROSPECTUS
A No-Load, Open-End, Diversified
Management Investment Company
Prospectus dated May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
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Distributor
A subsidiary of FEDERATED INVESTORS
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
8062810A-SS (5/94)
TAX-FREE INSTRUMENTS TRUST
INVESTMENT SHARES
INSTITUTIONAL SERVICE SHARES
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information should be read with
the respective prospectuses of Investment Shares and Institutional
Service Shares of Tax Free Instruments Trust ("the Trust") dated May
31, 1994. This Statement is not a prospectus itself. To receive a copy
of either prospectus, write or call the Trust.
LIBERTY CENTER
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated May 31, 1994
[LOGO] FEDERATED SECURITIES CORP.
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Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE TRUST 1
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INVESTMENT OBJECTIVE AND POLICIES 1
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Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 2
Temporary Investments 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Investment Limitations 3
THE FUNDS 4
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INVESTMENT ADVISORY SERVICES 5
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Adviser to the Trust 5
Advisory Fees 5
ADMINISTRATIVE SERVICES 6
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SHAREHOLDER SERVICES PLAN 6
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BROKERAGE TRANSACTIONS 6
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PURCHASING SHARES 7
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DETERMINING NET ASSET VALUE 7
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Use of the Amortized Cost Method 7
REDEEMING SHARES 8
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Redemption in Kind 8
TAX STATUS 8
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The Trust's Tax Status 8
YIELD 8
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TAX-EQUIVALENT YIELD 9
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Tax-Equivalency Table 9
EFFECTIVE YIELD 10
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PERFORMANCE COMPARISONS 10
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FINANCIAL STATEMENTS 10
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APPENDIX 11
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GENERAL INFORMATION ABOUT THE TRUST
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Tax-Free Instruments Trust (the "Trust") was established as a Massachusetts
business trust under a Declaration of Trust dated November 17, 1981. On August
30, 1993, the Shareholders of the Trust voted to permit the Trust to offer
separate series and classes of shares.
Shares of the Trust are offered in two classes known as Investment Shares and
Institutional Service Shares (individually and collectively referred to as
"Shares" as the context may require). This Combined Statement of Additional
Information relates to both the above-mentioned Shares of the Trust.
INVESTMENT OBJECTIVE AND POLICIES
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The Trust's investment objective is to provide current income exempt from
federal income tax consistent with stability of principal.
ACCEPTABLE INVESTMENTS
The Trust invests in municipal securities with remaining maturities of thirteen
months (397 days) or less at the time of purchase by the Trust. The investment
policies and the objective stated above cannot be changed without approval of
shareholders.
CHARACTERISTICS
The municipal securities in which the Trust invests have the
characteristics set forth in the prospectus.
An unrated municipal security will be determined by the Trust's Board of
Trustees to be of high quality if it is of comparable quality to
municipal securities within the Trust's rating requirements. The Trustees
consider the creditworthiness of the issuer of a municipal security, the
issuer of a participation interest if the Trust has the right to demand
payment from the issuer of the interest, or any guarantor of payment by
either of those issuers.
The Trust is not required to sell a municipal security if the security's
rating is reduced below the required minimum subsequent to the Trust's
purchase of the security. The investment adviser considers this event,
however, in its determination of whether the Trust should continue to
hold the security in its portfolio. If ratings made by Moody's and
Standard & Poor's change because of changes in those organizations or in
their rating systems, the Trust will try to use comparable ratings as
standards in accordance with the investment policies described in the
Trust's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of municipal securities are:
- municipal notes and municipal commercial paper;
- tax anticipation notes issued by municipalities to finance operating
requirements pending the receipt of ad valorem or other municipal
taxes;
- bond anticipation notes issued by municipalities for capital projects
pending the acquisition of long-term financing;
- serial bonds initially issued with sequential maturity dates;
- municipal bonds for which a deposit of obligations, whose interest and
principal payments are guaranteed by the U.S. government or any of its
agencies or by a high quality guarantor, is held in escrow in amounts
and maturities sufficient for the timely payment of bond interest and
principal; and
- municipal bonds with either variable or fixed interest rates, long-term
final maturities, and demand purchase provisions--exercisable on either
an optional or mandatory basis by the bondholder no less frequently
than annually on no more than thirty days notice--for the purchase of
bonds by the issuer or by its remarketing agent, if any.
PARTICIPATION INTEREST
The financial institutions from which the Trust purchases participation
interests frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Trust the right
to demand payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven days). The
municipal securities subject to the participation interests are not
limited to maturities of one year or less, so long as the participation
interests include the right to demand payment from the issuers of those
interests. These financial institutions may charge certain fees in
connection with their repurchase commitments, including a fee equal to
the excess of the interest paid on the municipal securities over the
negotiated yield at which the participation interests were purchased by
the Trust. By purchasing participation interests having a seven day
demand feature, the
Trust is buying a security meeting the maturity and quality requirements
of the Trust and also is receiving the tax-free benefits of the
underlying securities.
VARIABLE RATE MUNICIPAL SECURITIES.
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations.
Many municipal securities with variable interest rates purchased by the
Trust are subject to repayment of principal (usually within seven days)
on the Trust's demand. For purposes of determining the Trust's average
maturity, the maturities of these variable rate demand municipal
securities (including participation interests) are the longer of the
periods remaining until the next readjustment of their interest rates or
the periods remaining until their principal amounts can be recovered by
exercising the right to demand payment. The terms of these variable rate
demand instruments require payment of principal and accrued interest from
the issuer of the municipal obligations, the issuer of the participation
interests, or a guarantor of either issuer.
STANDBY COMMITMENTS BY DEALERS
The Trust enters into standby commitments only with those dealers that
the Trust's adviser believes are creditworthy. If a dealer were to
default under its standby commitment, the ability of the Trust to sell
the securities could be reduced.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Trust purchases securities with
payment and delivery scheduled for a future time. The Trust engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Trust's investment objective and
policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Trust. Settlement dates 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.
No fees or expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Trust sufficient to make payment for the securities to be
purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction has been settled.
TEMPORARY INVESTMENTS
The Trust may also invest in high quality temporary investments from time to
time for defensive purposes. During the last fiscal year, the Trust did not
invest in temporary investments and does not presently intend to do so in the
current fiscal year.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and other
recognized financial institutions sell U.S. government securities or
certificates of deposit to the Trust and agree at the time of sale to repurchase
them at a mutually agreed upon time and price within one year from the date of
acquisition. The Trust or its custodian will take possession of the securities
subject to repurchase agreements and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the securities
from the Trust, the Trust could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Trust
might be delayed pending court action. The Trust believes that under the regular
procedures normally in effect for custody of the Trust's portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Trust and allow retention or disposition of such securities. The
Trust may only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are found by the Trust's
adviser to be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Trust may also enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Trust transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Trust will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate. The use of reverse
repurchase agreements may enable the Trust to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but the
ability to enter into reverse repurchase agreements does not ensure that the
Trust will be able to avoid selling portfolio instruments at a disadvantageous
time.
When effecting reverse repurchase agreements, liquid assets of the Trust, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
From time to time, such as when suitable municipal securities are not available,
the Trust may invest a portion of its assets in cash. Any portion of the Trust's
assets maintained in cash will reduce the amount of assets in municipal
securities and thereby reduce the Trust's yield.
INVESTMENT LIMITATIONS
The Trust may 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 securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of securities.
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 securities. 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
securities would be inconvenient or disadvantageous.
Interest paid on borrowed funds will serve to reduce the Trust's income.
The Trust will liquidate any borrowings as soon as possible and may not
purchase any portfolio instruments while any borrowings are outstanding.
PLEDGING ASSETS
The Trust will not mortgage, pledge, or hypothecate its assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding 10% of the value of total assets at the time
of the pledge.
INVESTING IN REAL ESTATE
The Trust will not purchase or sell real estate, although it may invest
in municipal securities secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES AND MINERALS
The Trust will not purchase or sell commodities, commodity contracts, or
oil, gas, or other mineral exploration or development programs.
UNDERWRITING
The Trust will not underwrite any issue of securities, except as it may
be deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Trust will not lend any of its assets, except that it may acquire
publicly or non-publicly issued municipal securities or temporary
investments or enter into repurchase agreements, as permitted by its
investment objective and policies.
ACQUIRING SECURITIES
The Trust will not acquire the voting securities of any issuer, except as
a part of a merger, consolidation, reorganization, or acquisition of
assets. It may not invest in securities issued by any other investment
company or investment trust.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of its assets, the Trust will
not invest more than 5% of its total assets in the securities of any one
issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds backed only by the assets and revenues of a
nongovernmental user are considered to be issued solely by that user. If
in the case of an industrial development bond or governmental issued
security, a governmental or some other entity guarantees the security,
such guarantee would be considered a separate security issued by the
guarantor, as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
INVESTING IN NEW ISSUERS
The Trust will not invest more than 5% of the value of its total assets
in securities of issuers (or in the alternative, guarantors, where
applicable) which have records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST
The Trust will not purchase or retain the securities of any issuer other
than the Trust if the officers and Trustees of the Trust or its
investment adviser individually owning beneficially more than 1/2 of 1%
of the issuer's securities together beneficially own more than 5% of the
issuer's securities.
DEALING IN PUTS AND CALLS
The Trust will not purchase or sell puts, calls, straddles, spreads, or
any combination of them, except that the Trust may purchase municipal
securities from a bank, broker, dealer, or other person accompanied by
the agreement of the seller to purchase them, at the Trust's option,
prior to maturity.
INVESTING IN ILLIQUID SECURITIES
The Trust will not invest more than 10% of the value of its total assets
in illiquid securities, including repurchase agreements maturing in more
than seven days.
CONCENTRATION OF INVESTMENTS
The Trust will not purchase securities (other than securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities)
if, as a result of such purchase, more than 25% of the value of its
assets would be invested in any one industry.
This policy applies to securities which are related in such a way that an
economic, business, or political development affecting one security would
also affect the other securities (such as securities paid from revenues
from selected projects in transportation, public works, education, or
housing).
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 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.
The investment adviser has adopted a non-fundamental operating policy so that
the Trust will not invest more than 10% of the value of its net assets in
illiquid securities.
For purposes of its policies and limitations, the Trust considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
THE FUNDS
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"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate
Government Trust; Federated Master Trust; Federated Municipal Trust; Federated
Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable
Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress
Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income
Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.;
Insurance Management Series; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity
Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal
Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc.-1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series
Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations
Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal
Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage
Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust;
Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II;
Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust For
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; and World Investment Series, Inc..
TRUST OWNERSHIP
As of May 9, 1994, the following shareholders of record owned 5% or more
of the outstanding Investment Shares of the Trust: Citpad & Co., c/o
Citizens Bank & Trust Company, Paducah, Kentucky, owned approximately
35,976,069 shares (9.12%); Unit & Co., c/o U.S. National Bank of Oregon,
Portland, Oregon, owned approximately 26,340,765 shares (6.68%); and
Fiduciary Trust Company International, held for a customer account, New
York, New York, owned approximately 69,029,600 shares (17.50%).
As of May 9, 1994, no shareholders of record owned 5% or more of the
outstanding Institutional Service Shares of the Trust.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE TRUST
The Trust's investment adviser is Federated Management (the "Adviser"). It is a
subsidiary of Federated Investors. All the Class A (voting) shares of Federated
Investors are owned by a trust, the trustees of which are John F. Donahue, his
wife, and his son, J. Christopher Donahue. John F. Donahue is Chairman and
Trustee of Federated Management and Federated Investors, and Chairman and
Trustee of the Trust. John A. Staley, IV, is President, Federated Management,
Vice President and Trustee, Federated Investors, Executive Vice President,
Federated Securities Corp., and Vice President of the Trust. J. Christopher
Donahue is Trustee, Federated Management, President and Trustee, Federated
Investors, President and Trustee, Federated Administrative Services, and Vice
President of the Trust. John W. McGonigle is Vice President, Secretary and
Trustee, Federated Management, Trustee, Vice President, Secretary and General
Counsel, Federated Investors, Executive Vice President, Secretary and Trustee,
Federated Administrative Services, Trustee, Federated Services Company,
Executive Vice President and Director, Federated Securities Corp. and Vice
President and Secretary of the Trust.
The Adviser shall not be liable to the Trust or any shareholder for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus. During the fiscal years ended March 31,
1994, 1993, and 1992, the Adviser earned $8,264,650, $7,625,674, and $6,450,392,
respectively, which was voluntarily reduced by $2,322,865, $1,446,925, and
$1,435,968, respectively, because of undertakings to limit the Trust's expenses.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Trust's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes and extraordinary expenses) exceed
2-1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the Adviser will reimburse the
Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Servies, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Trust's administrator.
(For purposes of this Combined Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as the "Administrators.") For the fiscal
year ended March 31, 1994, the Administrators collectively earned $954,364. For
the fiscal years ended March 31, 1993 and 1992, Federated Administrative
Services, Inc., earned $684,378 and $677,300, respectively. John A. Staley, IV,
an officer of the Trust and Dr. Henry J. Gailliot, an officer of Federated
Management, the adviser to the Trust, each hold approximately 15% and 20%,
respectively, of the outstanding common stock and serve as directors of
Commercial Data Services, Inc., a company which provides computer procesing
services to Federated Administrative Services, Inc., and Federated
Administrative Services.
SHAREHOLDER SERVICES PLAN
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This arrangement permits the payment of fees to Federated Shareholder Services
and, indirectly, to Financial Institutions to cause services to be provided to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to: providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
For the fiscal year ended March 31, 1994, payments in the amount of $864,840
were made pursuant to the Shareholder Services Plan.
BROKERAGE TRANSACTIONS
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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
review by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Trust or to the
adviser and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising the Funds and other accounts. To
the extent that receipt of these services may supplant services for which the
adviser or its affiliates might otherwise have paid, it would tend to reduce
their expenses.
PURCHASING SHARES
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Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange is open for business. The procedure for purchasing Shares is
explained in the respective prospectus under "Investing in the Investment
Shares" and "Investing in Institutional Service Shares."
DETERMINING NET ASSET VALUE
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The Trust attempts to stabilize the value of Shares at $1.00. The days on which
net asset value is calculated by the Trust are described in the respective
prospectus of Investment Shares and Institutional Service Shares.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Trust's use of the amortized cost method of valuing portfolio securities
depends on its compliance with applicable conditions of 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.
Under the Rule, the Trust is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Trust to receive the principal amount of the instrument
from the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding 397 days on no more than 30 days' notice. A
standby commitment entitles the Trust to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
Although demand features and standby commitments are referred to as "puts" under
the Rule, the Trust does not consider them to be "puts" as that term is used in
the Trust's investment limitations. Demand features and standby commitments are
features which enhance an instrument's liquidity, and the investment limitation
which proscribes puts is designed to prohibit the purchase and sale of put and
call options and is not designed to prohibit the Trust from using techniques
which enhance the liquidity of portfolio instruments.
MONITORING PROCEDURES
The Trustees' 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
.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.
INVESTMENT RESTRICTIONS
The Rule requires that the Trust limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Trust to maintain a dollar weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Trust.
Should the disposition of a portfolio security result in a dollar
weighted average portfolio maturity of more than 90 days, the Trust will
invest its available cash to reduce the average maturity to 90 days or
less as soon as possible.
The Trust may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may from time to time
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on Shares
computed by dividing the annualized daily income on the Trust's portfolio by the
net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates.
In periods of rising interest rates, the indicated daily yield on Shares
computed the same way may tend to be lower than a similar computation made by
using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
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The Trust redeems Shares at the next computed net asset value after the Trust
receives the redemption request. Redemption procedures are explained in the
respective prospectus under "Redeeming Investment Shares" and "Redeeming
Institutional Service Shares." Although the transfer agent does not charge for
telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem Shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Trust's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem Shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Trust's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE TRUST'S TAX STATUS
The Trust will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Trust must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
YIELD
- --------------------------------------------------------------------------------
The yield for Investment Shares for the seven-day period ended March 31, 1994
was 1.69%.
The yield for Institutional Service Shares was 1.84% for the same period.
The Trust calculates the yield for both classes of Shares daily, based upon the
seven days ending on the day of 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 by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in either
class of Shares, the performance will be reduced for those shareholders paying
those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield for Investment Shares for the seven-day period ended
March 31, 1994 was 2.35%.
The tax-equivalent yield for Institutional Service Shares was 2.56% for the same
period.
The tax-equivalent yield of the Trust is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Trust would have had to earn
to equal its actual yield, assuming a 28% tax rate and assuming that income is
100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Trust may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Trust's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
* Some portion of the Trust's income may be subject to the federal alternative
minimum tax and state and local taxes.
<TABLE>
<S> <C> <C> <C> <C> <C>
TAX YIELD EQUIVALENT FOR 1994
FEDERAL INCOME TAX BRACKET
15.00% 28.00% 31.00% 36.00% 39.60%
- ----------------------------------------------------------------------------------
$1 - $38,001 - $91,851 - $140,001 - OVER
JOINT RETURN: 38,000 91,850 140,000 250,000 $250,000
$1 - $22,751 - $55,101 - $115,001 - OVER
SINGLE RETURN: 22,750 55,100 115,000 250,000 $250,000
- ----------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
- ----------------------------------------------------------------------------------
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50 1.76 2.08 2.17 2.34 2.48
2.00 2.35 2.78 2.90 3.13 3.31
2.50 2.94 3.47 3.62 3.91 4.14
3.00 3.53 4.17 4.35 4.69 4.97
3.50 4.12 4.86 5.07 5.47 5.79
4.00 4.71 5.56 5.80 6.25 6.62
4.50 5.29 6.25 6.52 7.03 7.45
5.00 5.88 6.94 7.25 7.81 8.28
5.50 6.47 7.64 7.97 8.59 9.11
6.00 7.06 8.33 8.70 9.38 9.93
6.50 7.65 9.03 9.42 10.16 10.76
7.00 8.24 9.72 10.14 10.94 11.59
7.50 8.82 10.42 10.87 11.72 12.42
8.00 9.41 11.11 11.59 12.50 13.25
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Trust.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The effective yield for Investment Shares for the seven-day period ended March
31, 1994 was 1.71%.
The effective yield for Institutional Service Shares was 1.86% for the same
period.
The effective yield for both classes of Shares is computed by compounding the
unannualized base period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of both classes of Shares depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in the Trust's or either class of Shares' expenses; and
- - the relative amount of cash flow of either class of Shares.
Investors may use financial publications and/or indices to obtain a more
complete view of the Share'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 Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Trust will quote its Lipper ranking in the "short-term
municipal bond funds" category in advertising and sales literature.
Advertisements and other sales literature for both classes of Shares of the
Trust may refer to total return. Total return is the historic change in the
value of an investment in either class of Shares based on monthly reinvestment
of dividends over a specified period of time.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The financial statements for the fiscal year ended March 31, 1994 are
incorporated herein by reference to the Trust's Annual Report. A copy of this
Report may be obtained without charge by contacting the Trust.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION MUNICIPAL BOND 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 higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND 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 some time in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment.
NR--NR indicates that Fitch does not rate the specific issue. Plus (+) or minus
(-):
Plus and minus signs are used with a rating symbol to indicate the relative
position of a credit within the rating category. Plus and minus signs, however,
are not used in the AAA category.
STANDARD AND POOR'S CORPORATION SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety charactertics will be given a plus (+)
designation.
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM MUNICIPAL OBLIGATION RATING
DEFINITIONS
MIG1/VMIG1--This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated broadbased access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
8062810B (5/94)
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Incorporated by reference to the
Annual Report of Registrant dated March 31, 1994 (File No. 2-
75122 and File No. 811-3337).
(b) Exhibits:
(1) Copy of Declaration of Trust of the Registrant as
amended (1, 2, 3);
(2) Copy of By-Laws of the Registrant (2, 5);
(3) Not applicable;
(4) Copy of Specimen Certificate for Shares of Beneficial
Interest of the Registrant (2);
(5) Copy of Investment Advisory Contract of the Registrant
(7);
(6) Conformed copy of Distributor's Contract of the
Registrant;+
(7) Not applicable;
(8) Copy of Custodian Agreement of the Registrant (9);
(9) (i) Copy of Transfer Agency and Service Agreement
of the Registrant (9);
(ii) Conformed copy of Shareholder Services Plan of
the Registrant;+
(10) Copy of Opinion and Consent of Counsel as to
legality of shares being registered (2);
(11) Conformed copy of Consent of Independent Public
Accountants;+
(12) Not applicable;
(13) Letter Agreement (3);
(14) Not applicable;
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1 filed on November 30, 1981. (File
No. 2-75122 and File No. 811-3337)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 to its Registration Statement on Form N-1 filed on
August 13, 1982. (File No. 2-75122 and File No. 811-3337)
3. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 to its Registration Statement on Form N-1 filed on
November 4, 1982. (File No. 2-75122 and File No. 811-3337)
4. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 to its Registration Statement on Form N-1 filed on
January 30, 1984. (File No. 2-75122 and File No. 811-3337)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 to its Registration Statement on Form N-1A filed on
July 14, 1987. (File No. 2-75122 and File No. 811-3337)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 to its Registration Statement on Form N-1A filed on
July 28, 1989. (File No. 2-75122 and File No. 811-3337).
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.20 to its Registration Statement on Form N-1A filed on
July 23, 1993. (File No. 2-75122 and File No. 811-3337).
(15) (i) Copy of Distribution Plan of the
Registrant (4);
(ii) Copy of Sales Agreement of the Registrant (5);
(iii) Copy of Rule 12b-1 Agreement of the Registrant
(4);
(iv) Copy of Dealer Agreement of the
Registrant (4)
(16) Schedule of Computation of Yield Calculation;
(6)
(17) Power of Attorney (8);
(18) Conformed copy of Opinion and Consent of Counsel
as to availability of Rule 485(b).+
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of May 9, 1994
Shares of Beneficial Interest (no par value)
Investment Shares 278
Institutional Service Shares 82,043
Item 27. Indemnification: (7.)
Item 28. Business and Other Connection of Investment Adviser
For a description of the other business of the investment adviser,
see the section entitled "Trust Information - Management of the
Trust" in Part A. The affiliations with the Registrant of four of
the Trustees and one of the Officers of the investment adviser are
included in Part A of this Registration Statement under
"Management of the Trust - Officers and Trustees." The remaining
Trustee of the investment adviser, his position with the
investment adviser, and, in parentheses, his principal occupation
is: Mark D. Olson, Partner, Wilson, Halbrook & Bayard, 107 W.
Market Street, Georgetown, Delaware 19947.
+ All exhibits have been filed electronically.
4. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 2 to its Registration Statement on Form N-1 filed on
January 30, 1984. (File No. 2-75122 and File No. 811-3337)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 to its Registration Statement on Form N-1A filed on
July 14, 1987. (File No. 2-75122 and File No. 811-3337)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 to its Registration Statement on Form N-1A filed on
July 18, 1988. (File No. 2-75122 and File No. 811-3337).
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 12 to its Registration Statement on Form N-1A filed on
July 28, 1989. (File No. 2-75122 and File No. 811-3337).
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 to its Registration Statement on Form N-1A filed on
July 23, 1992. (File No. 2-75122 and File No. 811-3337)
The remaining Officers of the investment adviser are: William D.
Dawson, J. Thomas Madden and Mark L. Mallon, Executive Vice
Presidents; Henry J. Gailliot, Senior Vice President-Economist;
Peter R. Anderson, Gary J. Madich, and J. Alan Minteer, Senior
Vice Presidents; Randall A. Bauer, Jonathan C. Conley, Deborah A.
Cunningham, Mark E. Durbiano, Roger A. Early, Kathleen M. Foody-
Malus, David C. Francis, Thomas M. Franks, Edward C. Gonzales,
Jeff A. Kozemchek, Marian R. Marinack, John W. McGonigle,
Gregory M. Melvin, Susan M. Nason, Mary Jo Ochson, Robert J.
Ostrowski, Charles A. Ritter and Christopher Wiles, Vice
Presidents, Edward C. Gonzales, Treasurer, and John W. McGonigle,
Secretary. The business address of each of the Officers of the
Federated Research Division of the investment adviser is Federated
Investors Tower, Pittsburgh, PA 15222-3779. These individuals are
also officers of a majority of the investment advisers to the
Funds listed in Part B of this Registration Statement under "The
Funds."
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management
Series; Automated Cash Management Trust; Automated Government
Money Trust; BayFunds; The Biltmore Funds; The Biltmore
Municipal Funds; The Boulevard Funds; California Municipal
Cash Trust; Cambridge Series Trust; Cash Trust Series, Inc.;
Cash Trust Series II; DG Investor Series; Edward D. Jones &
Co. Daily Passport Cash Trust; Federated ARMs Fund;
Federated Exchange Fund, Ltd.; Federated GNMA Trust;
Federated Government Trust; Federated Growth Trust; Federated
High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated
Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust;
Federated Stock Trust; Federated Tax-Free Trust; Federated
U.S. Government Bond Fund; Financial Reserves Fund; First
Priority Funds; First Union Funds; Fixed Income Securities,
Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund,
Inc.; Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Insight
Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.;
Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain
Funds; Marshall Funds, Inc.; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; The
Monitor Funds; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; Portage Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; SouthTrust Vulcan Funds; Star Funds; The Starburst
Funds; The Starburst Funds II; Stock and Bond Fund, Inc.;
Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Tower Mutual Funds; Trademark Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves;
Trust for Short-Term U.S. Government Securities; Trust for
U.S. Treasury Obligations; Vision Fiduciary Funds, Inc.;
Vision Group of Funds, Inc.; and World Investment Series,
Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer,
Asst. Treasurer and Asst.
Secretary, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President
Federated Investors Tower President, and Treasurer,
Pittsburgh, PA 15222-3779 Federated Securities
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John A. Staley, IV Executive Vice President Vice President
Federated Investors Tower and Assistant Secretary,
Pittsburgh, PA 15222-3779 Federated Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James R. Ball Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Michael D. Fitzgerald Vice President
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Federated Assistant
Federated Investors Tower Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-b promulgated thereunder are maintained at one of the
following locations:
Tax-Free Instruments Trust Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper
Federated Administrative Services Federated Investors Tower
Administrator Pittsburgh, PA 15222-3779
Federated Management Federated Investors Tower
Adviser Pittsburgh, PA 15222-3779
State Street Bank and Trust P.O. Box 8604
Company Boston, MA 02266-8604
Custodian
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, TAX-FREE INSTRUMENTS TRUST,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania,
on the 26th day of May, 1994.
TAX-FREE INSTRUMENTS TRUST
BY: /s/Charles H. Field
Charles H. Field, Assistant Secretary
Attorney in Fact for John F. Donahue
May 26, 1994
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Charles H. Field
Charles H. Field Attorney In Fact May 26, 1994
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Glen R. Johnson* President
Edward C. Gonzales* Vice President and Treasurer
(Principal Financial and
Accounting Officer)
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 11 under N-1A
Exhibit 23 under Item 601/Reg SK
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in Post-
Effective Amendment No. 23 to Form N-1A Registration Statement of Tax-Free
Instruments Trust of our report dated May 13 1994, on the financial
statements as of March 31, 1994, included in or made part of this
registration statement.
By: ARTHUR ANDERSEN & CO.
ARTHUR ANDERSEN & CO.
Pittsburgh, Pennsylvania,
May 25, 1994
Exhibit 18 under Form N-1A
Exhibit 99 under Item 601/Reg. S-K
HOUSTON, HOUSTON & DONNELLY
ATTORNEYS AT LAW
2510 CENTRE CITY TOWER
WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222
FRED CHALMERS HOUSTON, JR. __________
THOMAS J. DONNELLY
JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON
FAX (412) 471-0736 (1914 - 1971)
MARIO SANTILLI, JR.
THEODORE M. HAMMER
May 18, 1994
Tax-Free Instruments Trust
Federated Investors Tower
Pittsburgh, PA 15222-3779
Gentlemen:
As counsel to Tax-Free Instruments Trust ("Trust") we have
reviewed Post-effective Amendment No. 23 to the Trust's Registration
Statement to be filed with the Securities and Exchange Commission under
the Securities Act of 1933 (File No. 2-75122). The subject Post-
effective Amendment will be filed pursuant to Paragraph (b) of Rule 485
and become effective pursuant to said Rule on May 31, 1994.
Our review also included an examination of other relevant portions
of the amended 1933 Act Registration Statement of the Trust and such
other documents and records deemed appropriate. On the basis of this
review we are of the opinion that Post-effective Amendment No. 23 does
not contain disclosures which would render it ineligible to become
effective pursuant to Paragraph (b) of Rule 485.
We hereby consent to the filing of this representation letter as a
part of the Trust's Registration Statement filed with the Securities and
Exchange Commission under the Securities Act of 1933 and as part of any
application or registration statement filed under the Securities Laws of
the States of the United States.
Very truly yours,
Houston, Houston & Donnelly
By: Thomas J. Donnelly
TJD:smg
Exhibit 6 under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
TAX-FREE INSTRUMENTS TRUST
DISTRIBUTOR'S CONTRACT
AGREEMENT made this 1st day of June, 1993, by and between Tax-Free
Instruments Trust (the "Trust"), a Massachusetts Business Trust, and
FEDERATED SECURITIES CORP. ("FSC"), a Pennsylvania Trust.
In consideration of the mutual covenants hereinafter contained, it
is hereby agreed by and between the parties hereto as follows:
1. The Trust hereby appoints FSC as its agent to sell and
distribute shares of the Trust which may be offered in one or more
series (the "Funds") consisting of one or more classes (the "Classes")
of shares (the "Shares"), as described and set forth on one or more
exhibits to this Agreement, at the current offering price thereof as
described and set forth in the current Prospectuses of the Trust. FSC
hereby accepts such appointment and agrees to provide such other
services for the Trust, if any, and accept such compensation from the
Trust, if any, as set forth in the applicable exhibit to this Agreement.
2. The sale of any Shares may be suspended without prior notice
whenever in the judgment of the Trust it is in its best interest to do
so.
3. Neither FSC nor any other person is authorized by the Trust
to give any information or to make any representation relative to any
Shares other than those contained in the Registration Statement,
Prospectuses, or Statements of Additional Information ("SAIs") filed
with the Securities and Exchange Commission, as the same may be amended
from time to time, or in any supplemental information to said
Prospectuses or SAIs approved by the Trust. FSC agrees that any other
information or representations other than those specified above which it
or any dealer or other person who purchases Shares through FSC may make
in connection with the offer or sale of Shares, shall be made entirely
without liability on the part of the Trust. No person or dealer, other
than FSC, is authorized to act as agent for the Trust for any purpose.
FSC agrees that in offering or selling Shares as agent of the Trust, it
will, in all respects, duly conform to all applicable state and federal
laws and the rules and regulations of the National Association of
Securities Dealers, Inc., including its Rules of Fair Practice. FSC
will submit to the Trust copies of all sales literature before using the
same and will not use such sales literature if disapproved by the Trust.
4. This Agreement is effective with respect to each Class as of
the date of execution of the applicable exhibit and shall continue in
effect with respect to each Class presently set forth on an exhibit and
any subsequent Classes added pursuant to an exhibit during the initial
term of this Agreement for one year from the date set forth above, and
thereafter for successive periods of one year if such continuance is
approved at least annually by the Trustees of the Trust including a
majority of the members of the Board of Trustees of the Trust who are
not interested persons of the Trust and have no direct or indirect
financial interest in the operation of any Distribution Plan relating to
the Trust or in any related documents to such Plan ("Disinterested
Trustees") cast in person at a meeting called for that purpose. If a
Class is added after the first annual approval by the Trustees as
described above, this Agreement will be effective as to that Class upon
execution of the applicable exhibit and will continue in effect until
the next annual approval of this Agreement by the Trustees and
thereafter for successive periods of one year, subject to approval as
described above.
5. This Agreement may be terminated with regard to a particular
Fund or Class at any time, without the payment of any penalty, by the
vote of a majority of the Disinterested Trustees or by a majority of the
outstanding voting securities of the particular Fund or Class on not
more than sixty (60) days' written notice to any other party to this
Agreement. This Agreement may be terminated with regard to a particular
Fund or Class by FSC on sixty (60) days' written notice to the Trust.
6. This Agreement may not be assigned by FSC and shall
automatically terminate in the event of an assignment by FSC as defined
in the Investment Company Act of 1940, as amended, provided, however,
that FSC may employ such other person, persons, Trust or Trusts as it
shall determine in order to assist it in carrying out its duties under
this Agreement.
7. FSC shall not be liable to the Trust 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
by this Agreement.
8. This Agreement may be amended at any time by mutual
agreement in writing of all the parties hereto, provided that such
amendment is approved by the Trustees of the Trust including a majority
of the Disinterested Trustees of the Trust cast in person at a meeting
called for that purpose.
9. This Agreement shall be construed in accordance with and
governed by the laws of the Commonwealth of Pennsylvania.
10. (a) Subject to the conditions set forth below, the Trust
agrees to indemnify and hold harmless FSC and each person, if any, who
controls FSC within the meaning of Section 15 of the Securities Act of
1933 and Section 20 of the Securities Act of 1934, as amended, against
any and all loss, liability, claim, damage and expense whatsoever
(including but not limited to any and all expenses whatsoever reasonably
incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever) arising
out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement, any
Prospectuses or SAIs (as from time to time amended and supplemented) or
the omission or alleged omission therefrom of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, unless such statement or omission was made in reliance upon
and in conformity with written information furnished to the Trust about
FSC by or on behalf of FSC expressly for use in the Registration
Statement, any Prospectuses and SAIs or any amendment or supplement
thereof.
If any action is brought against FSC or any
controlling person thereof with respect to which indemnity may be sought
against the Trust pursuant to the foregoing paragraph, FSC shall
promptly notify the Trust in writing of the institution of such action
and the Trust shall assume the defense of such action, including the
employment of counsel selected by the Trust and payment of expenses.
FSC or any such controlling person thereof shall have the right to
employ separate counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of FSC or such controlling person
unless the employment of such counsel shall have been authorized in
writing by the Trust in connection with the defense of such action or
the Trust shall not have employed counsel to have charge of the defense
of such action, in any of which events such fees and expenses shall be
borne by the Trust. Anything in this paragraph to the contrary
notwithstanding, the Trust shall not be liable for any settlement of any
such claim of action effected without its written consent. The Trust
agrees promptly to notify FSC of the commencement of any litigation or
proceedings against the Trust or any of its officers or Trustees or
controlling persons in connection with the issue and sale of Shares or
in connection with the Registration Statement, Prospectuses, or SAIs.
(b) FSC agrees to indemnify and hold harmless the Trust,
each of its Trustees, each of its officers who have signed the
Registration Statement and each other person, if any, who controls the
Trust within the meaning of Section 15 of the Securities Act of 1933,
but only with respect to statements or omissions, if any, made in the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof in reliance upon, and in conformity with, information
furnished to the Trust about FSC by or on behalf of FSC expressly for
use in the Registration Statement or any Prospectus, SAI, or any
amendment or supplement thereof. In case any action shall be brought
against the Trust or any other person so indemnified based on the
Registration Statement or any Prospectus, SAI, or any amendment or
supplement thereof, and with respect to which indemnity may be sought
against FSC, FSC shall have the rights and duties given to the Trust,
and the Trust and each other person so indemnified shall have the rights
and duties given to FSC by the provisions of subsection (a) above.
(c) Nothing herein contained shall be deemed to
protect any person against liability to the Trust or its shareholders to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of the
duties of such person or by reason of the reckless disregard by such
person of the obligations and duties of such person under this
Agreement.
(d) Insofar as indemnification for liabilities may
be permitted pursuant to Section 17 of the Investment Company Act of
1940, as amended, for Trustees, officers, FSC and controlling persons of
the Trust by the Trust pursuant to this Agreement, the Trust is aware of
the position of the Securities and Exchange Commission as set forth in
the Investment Company Act Release No. IC-11330. Therefore, the Trust
undertakes that in addition to complying with the applicable provisions
of this Agreement, in the absence of a final decision on the merits by a
court or other body before which the proceeding was brought, that an
indemnification payment will not be made unless in the absence of such a
decision, a reasonable determination based upon factual review has been
made (i) by a majority vote of a quorum of non-party Disinterested
Trustees, or (ii) by independent legal counsel in a written opinion that
the indemnitee was not liable for an act of willful misfeasance, bad
faith, gross negligence or reckless disregard of duties. The Trust
further undertakes that advancement of expenses incurred in the defense
of a proceeding (upon undertaking for repayment unless it is ultimately
determined that indemnification is appropriate) against an officer,
Trustee/Director, FSC or controlling person of the Trust will not be
made absent the fulfillment of at least one of the following conditions:
(i) the indemnitee provides security for his undertaking; (ii) the Trust
is insured against losses arising by reason of any lawful advances; or
(iii) a majority of a quorum of non-party Disinterested Trustees or
independent legal counsel in a written opinion makes a factual
determination that there is reason to believe the indemnitee will be
entitled to indemnification.
11. If at any time the Shares of any Fund are offered in two or
more Classes, FSC agrees to adopt compliance standards as to when a
class of shares may be sold to particular investors.
12. This Agreement will become binding on the parties hereto
upon the execution of the attached exhibits to the Agreement.
Exhibit A
to the
Distributor's Contract
Tax-Free Instruments Trust
Investment Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated June 1, 1993, between Tax-Free Instruments
Trust and Federated Securities Corp., Tax-Free Instruments Trust
executes and delivers this Exhibit on behalf of the Funds, and with
respect to the separate Classes of Shares thereof, first set forth in
this Exhibit.
Witness the due execution hereof this 1st day of June, 1993.
ATTEST: TAX-FREE INSTRUMENTS TRUST
/s/ John W. McGonigle By: /s/ Glen R. Johnson
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary President
(SEAL)
Exhibit B
to the
Distributor's Contract
Tax-Free Instruments Trust
Institutional Service Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated June 1, 1993, between Tax-Free Instruments
Trust and Federated Securities Corp., Tax-Free Instruments Trust
executes and delivers this Exhibit on behalf of the Funds, and with
respect to the separate Classes of Shares thereof, first set forth in
this Exhibit.
Witness the due execution hereof this 1st day of June, 1993.
ATTEST: TAX-FREE INSTRUMENTS TRUST
/s/ John W. McGonigle By: /s/ Glen R. Johnson
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
/s/ S. Elliott Cohan By: /s/ John A. Staley, IV
Secretary President
(SEAL)
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
TAX-FREE INSTRUMENTS TRUST
SHAREHOLDER SERVICES PLAN
This Shareholder Services Plan ("Plan") is adopted as of this 21st
day of May, 1993, by the Board of Trustees of Tax-Free Instruments
Trust (the "Trust"), a Massachusetts business trust with respect to
certain classes of shares ("Classes") of the portfolios of the Trust set
forth in exhibits hereto.
1. This Plan is adopted to allow the Trust to make payments as
contemplated herein to obtain certain personal services for shareholders
and/or the maintenance of shareholder accounts ("Services").
2. This Plan is designed to compensate broker/dealers and other
participating financial institutions and other persons ("Providers") for
providing services to the Trust and its shareholders. The Plan will be
administered by Federated Administrative Services, Inc. ("FAS"). In
compensation for the services provided pursuant to this Plan, Providers
will be paid a monthly fee computed at the annual rate not to exceed .25
of 1% of the average aggregate net asset value of the shares of the
Trust held during the month.
3. Any payments made by the Portfolios to any Provider pursuant
to this Plan will be made pursuant to the "Shareholder Services
Agreement" entered into by FAS on behalf of the Trust and the Provider.
Providers which have previously entered into "Administrative Agreements"
or "Rule 12b-1 Agreements" with Federated Securities Corp. may be
compensated under this Plan for Services performed pursuant to those
Agreements until the Providers have executed a "Shareholder Services
Agreement" hereunder.
4. The Trust has the right (i) to select, in its sole
discretion, the Providers to participate in the Plan and (ii) to
terminate without cause and in its sole discretion any Shareholder
Services Agreement.
5. Quarterly in each year that this Plan remains in effect, FAS
shall prepare and furnish to the Board of Trustees of the Trust, and the
Board of Trustees shall review, a written report of the amounts expended
under the Plan.
6. This Plan shall become effective (i) after approval by
majority votes of: (a) the Trust's Board of Trustees; and (b) the
members of the Board of the Trust who are not interested persons of the
Trust and have no direct or indirect financial interest in the operation
of the Trust's Plan or in any related documents to the Plan
("Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting on the Plan; and (ii) upon execution of an exhibit
adopting this Plan.
7. This Plan shall remain in effect with respect to each Class
presently set forth on an exhibit and any subsequent Classes added
pursuant to an exhibit during the initial year of this Plan for the
period of one year from the date set forth above and may be continued
thereafter if this Plan is approved with respect to each Class at least
annually by a majority of the Trust's Board of Trustees and a majority
of the Disinterested Trustees, cast in person at a meeting called for
the purpose of voting on such Plan. If this Plan is adopted with
respect to a class after the first annual approval by the Trustees as
described above, this Plan will be effective as to that Class upon
execution of the applicable exhibit pursuant to the provisions of
paragraph 6(ii) above and will continue in effect until the next annual
approval of this Plan by the Trustees and thereafter for successive
periods of one year subject to approval as described above.
8. All material amendments to this Plan must be approved by a
vote of the Board of Trustees of the Trust and of the Disinterested
Trustees, cast in person at a meeting called for the purpose of voting
on it.
9. This Plan may be terminated at any time by: (a) a majority
vote of the Disinterested Trustees; or (b) a vote of a majority of the
outstanding voting securities of the Trust as defined in Section
2(a)(42) of the Act.
10. While this Plan shall be in effect, the selection and
nomination of Disinterested Trustees of the Trust shall be committed to
the discretion of the Disinterested Trustees then in office.
11. All agreements with any person relating to the
implementation of this Plan shall be in writing and any agreement
related to this Plan shall be subject to termination, without penalty,
pursuant to the provisions of Paragraph 9 herein.
12. This Plan shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania.
Witness the due execution hereof this 21st day of May, 1993.
TAX-FREE INSTRUMENTS TRUST
By:/s/ Glen R. Johnson
President
EXHIBIT A
to the
Shareholder Services Plan
Tax-Free Instruments Trust
Investment Shares
This Plan is adopted by Tax-Free Instruments Trust with respect to
the Class of Shares of the Trust set forth above.
In compensation for the services provided pursuant to this Plan,
Providers will be paid a monthly fee computed at the annual rate of .25
of 1% of the average aggregate net asset value of the Investment Shares
of the Trust held during the month.
Witness the due execution hereof this 21st day of May, 1993.
TAX-FREE INSTRUMENTS TRUST
By:/s/ Glen R. Johnson
President
