MONEY MARKET TRUST
PROSPECTUS
The shares of Money Market Trust (the "Trust") offered by this prospectus
represent interests in an open-end, management investment company (a mutual
fund). The Trust invests in short-term money market securities to achieve
stability of principal and current income consistent with stability of
principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. THE TRUST ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE TRUST WILL BE ABLE TO
DO SO.
This prospectus contains the information you should read and know before you
invest in the Trust. Keep this prospectus for future reference.
The Trust has also filed a Statement of Additional Information dated
September 30, 1996, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information or a paper copy of this prospectus,
if you have received your prospectus electronically, free of charge by
calling 1-800-341-7400. To obtain other information, or make inquiries about
the Trust, contact the Trust at the address listed in the back of this
prospectus. The Statement of Additional Information, material incorporated
by reference into this document, and other information regarding the Trust
is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION 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 September 30, 1996
Table of Contents
<TABLE>
<S> <C>
SUMMARY OF TRUST EXPENSES 1
FINANCIAL HIGHLIGHTS 2
GENERAL INFORMATION 3
INVESTMENT INFORMATION 3
Investment Objective 3
Investment Policies 3
Investment Limitations 5
TRUST INFORMATION 6
Management of the Trust 6
Distribution of Shares 7
Administration of the Trust 7
NET ASSET VALUE 7
HOW TO PURCHASE SHARES 8
HOW TO REDEEM SHARES 9
ACCOUNT AND SHARE INFORMATION 10
TAX INFORMATION 10
Federal Income Tax 10
State and Local Taxes 10
PERFORMANCE INFORMATION 11
FINANCIAL STATEMENTS 12
INDEPENDENT AUDITORS' REPORT 22
ADDRESSES 23
</TABLE>
SUMMARY OF TRUST EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge Imposed on Reinvested Dividends (as a percentage of offering price) None
Contingent Deferred Sales Charge (as a percentage of original purchase
price or redemption proceeds, as applicable) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1) 0.26%
12b-1 Fee None
Total Other Expenses 0.20%
Shareholder Services Fee (after waiver)(2) 0.05%
Total Operating Expenses(3) 0.46%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The maximum management fee is 0.40%.
(2) The shareholder services fee has been reduced to reflect the voluntary
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this voluntary waiver at any time at its
sole discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.80% absent the voluntary
waiver of a portion of the management fee and a portion of the shareholder
services fee.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Trust will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Trust Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and
(2) redemption at the end of each time period $5 $15 $26 $58
</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.
MONEY MARKET TRUST
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 22.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.05 0.05 0.03 0.03 0.04
LESS DISTRIBUTIONS
Distributions
from net
investment
income (0.05) (0.05) (0.03) (0.03) (0.04))
NET ASSET
VALUE, END
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 5.31% 5.42% 3.18% 3.00% 4.49%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.46% 0.46% 0.46% 0.46% 0.46%
Net investment
income 5.22% 5.32% 3.11% 2.98% 4.40%
Net assets, end
of period
(000 omitted) $513,687 $507,272 $539,983 $712,577 $943,893
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.07 0.08 0.09 0.07 0.06
LESS DISTRIBUTIONS
Distributions
from net
investment
income (0.07) (0.08) (0.09) (0.07) (0.06)
NET ASSET
VALUE, END
OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(A) 7.05% 8.43% 8.93% 6.94% 5.98%
RATIOS TO AVERAGE
NET ASSETS
Expenses 0.46% 0.46% 0.45% 0.45% 0.45%
Net investment
income 6.88% 8.14% 8.58% 6.72% 5.80%
Net assets, end
of period
(000 omitted) $956,538 $1,189,023 $1,649,683 $1,685,914 $1,747,618
</TABLE>
(a) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
The Trust was established as a Massachusetts business trust under a
Declaration of Trust dated July 24, 1978. The Trust is designed for
institutional investors such as banks, fiduciaries, custodians of public
funds, and similar institutional investors as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio
investing in short-term money market securities. A minimum initial
investment of $25,000 over a 90-day period is required.
The Trust attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Trust is stability of principal and current
income consistent with stability of principal. This investment objective
cannot be changed without shareholder approval. While there is no assurance
that the Trust will achieve its investment objective, it endeavors to do so
by complying with the diversification and other requirements of Rule 2a-7
under the Investment Company Act of 1940 which regulates money market mutual
funds and by following the investment policies described in this prospectus.
The investment policies and limitations set forth below cannot be changed by
the Board of Trustees without shareholder approval.
INVESTMENT POLICIES
The Trust pursues its investment objective by investing in a portfolio of
money market securities maturing in one year or less. As a matter of
operating policy, which may be changed without shareholder approval, the
Trust will limit the average maturity of its portfolio to 90 days or less,
in order to meet regulatory requirements. The Trust may attempt to increase
yield by trading portfolio securities to take advantage of short-term market
variations.
ACCEPTABLE INVESTMENTS. The Trust invests in high quality money market
instruments that are either rated in the highest short-term rating category
by one or more nationally recognized statistical rating organizations
("NRSROs") or are of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:
* domestic issues of corporate debt obligations, including variable rate
demand notes;
* commercial paper (including Canadian Commercial Paper and Europaper);
* certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
* short-term credit facilities;
* asset-backed securities;
* obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities; and
* other money market instruments.
The Trust invests only in instruments denominated and payable in U.S.
dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide the
Trust with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear
interest at a rate that is intended to cause the securities to trade at par.
The interest rate may float or be adjusted at regular intervals (ranging
from daily to annually), and is normally based on a published interest rate
or interest rate index. Most variable rate demand notes allow the Trust to
demand the repurchase of the security on not more than seven days prior
notice. Other notes only permit the Trust to tender the security at the time
of each interest rate adjustment or at other fixed intervals. See "Demand
Features." The Trust treats variable rate demand notes as maturing on the
later of the date of the next interest rate adjustment or the date on which
the Trust may next tender the security for repurchase.
BANK INSTRUMENTS. The Trust only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million, or insured by the Bank Insurance Fund or the Savings Association
Insurance Fund. Bank Instruments may include Eurodollar Certificates of
Deposit, Yankee Certificates of Deposit and Eurodollar Time Deposits. The
Trust will treat securities credit enhanced with a bank's letter of credit
as Bank Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. The Trust may enter into, or acquire
participations in, short-term borrowing arrangements with corporations,
consisting of either a short-term revolving credit facility or a master note
agreement payable upon demand. Under these arrangements, the borrower may
reborrow funds during the term of the facility. The Trust treats any
commitments to provide such advances as a standby commitment to purchase the
borrower's notes.
REPURCHASE AGREEMENTS. Certain securities in which the Trust invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Trust and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent that
the seller does not repurchase the securities from the Trust, the Trust
could receive less than the repurchase price on any sale of such securities.
CREDIT ENHANCEMENT. Certain of the Trust's acceptable investments may be
credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, or default of the party providing the credit
enhancement will adversely affect the quality and marketability of the
underlying security.
DEMAND FEATURES. The Trust may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Trust. The demand feature may
be issued by the issuer of the underlying securities, a dealer in the
securities, or by another third party, and may not be transferred separately
from the underlying security. The Trust uses these arrangements to provide
the Trust with liquidity and not to protect against changes in the market
value of the underlying securities. The bankruptcy, receivership, or default
by the issuer of the demand feature, or a default on the underlying security
or other event that terminates the demand feature before its exercise, will
adversely affect the liquidity of the underlying security. Demand features
that are exercisable even after a payment default on the underlying security
may be treated as a form of credit enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Trust may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Trust purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete these
transactions may cause the Trust to miss a price or yield considered to be
advantageous. Settlement dates may be a month or more after entering into
these transactions, and the market values of the securities purchased may
vary from the purchase prices. Accordingly, the Trust may pay more or less
than the market value of the securities on the settlement date.
The Trust may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Trust may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Trust may realize short-term profits
or losses upon the sale of such commitments.
RESTRICTED AND ILLIQUID SECURITIES. The Trust may invest in restricted
securities. Restricted securities are any securities in which the Trust may
invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Trust will limit investments in illiquid securities, including certain
restricted securities (except for Section 4(2) commercial paper),
non-negotiable time deposits, and repurchase agreements providing for
settlement in more than seven days after notice, to 10% of its net assets.
The Trust may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) commercial paper is restricted as to disposition under federal
securities law, and is generally sold to institutional investors, such as
the Trust, who agree that they are purchasing the paper for investment
purposes and not with a view to public distribution. Any resale by the
purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like the Trust through or
with the assistance of the issuer or investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Trust believes
that Section 4(2) commercial paper and possibly certain other restricted
securities which meet the criteria for liquidity established by the Trustees
of the Trust are quite liquid. The Trust intends, therefore, to treat the
restricted securities which meet the criteria for liquidity established by
the Trustees, including Section 4(2) commercial paper, as determined by the
Trust's investment adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section
4(2) commercial paper is liquid, the Trust intends to not subject such paper
to the limitation applicable to restricted securities.
INVESTMENT LIMITATIONS
The Trust will not borrow money or pledge securities except, under certain
circumstances, the Trust may borrow up to one-third of the value of its
total assets and pledge assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
TRUST INFORMATION
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all the Trust's powers except those reserved for the shareholders. An
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Trust are made by Federated
Research, the Trust's investment adviser, subject to direction by the
Trustees. The adviser continually conducts investment research and
supervision for the Trust and is responsible for the purchase and sale of
portfolio instruments.
ADVISORY FEES. The adviser receives an annual investment advisory fee equal
to .40% of the Trust's average daily net assets. The adviser has undertaken
to reimburse the Trust up to the amount of the advisory fee for operating
expenses in excess of limitations established by certain states. In
addition, under the investment advisory contract, the advisor will waive the
amount, limited to the amount of the advisory fee, by which the Trust's
aggregate annual operating expenses, including the investment advisory fee
but excluding interest, taxes, brokerage commissions, expenses of
registering and qualifying the Trust and its shares under federal and state
laws and regulations, expenses of withholding taxes, and extraordinary
expenses, exceed .45% of its average daily net assets.
ADVISER'S BACKGROUND. Federated Research, 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 Research and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services to
a number of investment companies. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Trust and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Trust's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Trust; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of the
Trust. It is a Pennsylvania corporation organized on November 14, 1969, and
is the principal distributor for a number of investment companies. Federated
Securities Corp. is a subsidiary of Federated Investors.
SHAREHOLDER SERVICES. The Trust has entered into a Shareholder Services
Agreement with Federated Shareholder Services, a subsidiary of Federated
Investors, under which the Trust may make payments up to .25% of the average
daily net asset value of the Trust, computed at an annual rate, to obtain
personal services for shareholders and provide maintenance of shareholder
accounts. From time to time and for such periods as deemed appropriate, the
amount stated above may be reduced voluntarily.
Under the Shareholder Services Agreement, Federated Shareholder Services
will either perform shareholder services directly or will select financial
institutions to perform shareholder services. Financial institutions will
receive fees based upon shares owned by their clients or customers. The
schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the Trust and Federated Shareholder
Services.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Services Company, a subsidiary of
Federated Investors, provides administrative personnel and services
(including certain legal and financial reporting services) necessary to
operate the Trust at an annual rate as which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares
Federated Services Company may choose voluntarily to waive a portion of its
fee.
NET ASSET VALUE
The Trust attempts to stabilize the net asset value of its shares at $1.00
by valuing the portfolio securities using the amortized cost method. The net
asset value per share is determined by subtracting total liabilities from
total assets and dividing the remainder by the number of shares outstanding.
The Trust cannot guarantee that its net asset value will always remain at
$1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time),
and as of the close of trading (normally 4:00 p.m., Eastern time) on the New
York Stock Exchange, Monday through Friday, except on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days on which the New York Stock
Exchange is open for business. Shares may be purchased either by wire or by
check. The Trust reserves the right to reject any purchase request.
To make a purchase, open an account by calling Federated Securities Corp.
Information needed to establish the account will be taken by telephone. The
minimum initial investment is $25,000. However, an account may be opened
with a smaller amount as long as the minimum is reached within 90 days.
Minimum investments will be calculated by combining all accounts maintained
with the Trust. Financial institutions may impose different minimum
investment requirements on their customers.
PURCHASING SHARES BY WIRE. Shares may be purchased by Federal Reserve wire
by calling the Trust before 3:00 p.m. (Eastern time) to place an order. The
order is considered received immediately. Payment by federal funds must be
received before 3:00 p.m. (Eastern time) that day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; Attention: EDGEWIRE; For Credit to:
Money Market Trust; Fund Number (this number can be found on the account
statement or by contacting the Trust); Group Number or Order Number; Nominee
or Institution Name; and ABA Number 011000028. Shares cannot be purchased by
wire on holidays when wire transfers are restricted. Questions on wire
purchases should be directed to your shareholder services representative at
the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK. Shares may be purchased by sending a check to
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. The check should be made payable to Money Market Trust. Orders
by mail are considered received when payment by check is converted into
federal funds (normally the business day after the check is received), and
shares begin earning dividends the next day.
AUTOMATIC INVESTMENTS. Investors may establish accounts with their financial
institutions to have cash accumulations automatically invested in the Trust.
The investments may be made on predetermined dates or when the investor's
account reaches a certain level. Participating financial institutions are
responsible for prompt transmission of orders relating to the program, and
they may charge for their services. Investors should read this prospectus
along with the financial institution's agreement or literature describing
these services and fees.
SUBACCOUNTING SERVICES. Financial institutions are encouraged to open single
master accounts. A subaccounting system is available through the transfer
agent to minimize internal recordkeeping requirements. The transfer agent
charges a fee based on the level of subaccounting services rendered.
Financial institutions 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 financial
institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed. State securities
laws may require certain financial institutions such as depository
institutions to register as dealers.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions
will be made on days on which the Trust computes its net asset value.
Redemption requests must be received in proper form and can be made as
described below.
REDEEMING SHARES BY TELEPHONE. Redemptions in any amount may be made by
calling the Trust provided the Trust has a properly completed authorization
form. These forms can be obtained from Federated Securities Corp. Proceeds
from redemption requests received before 3:00 p.m. (Eastern time) will be
wired the same day to the shareholder's account at a domestic commercial
bank which is a member of the Federal Reserve System, but will not include
that day's dividend. Proceeds from redemption requests received after that
time include that day's dividend but will be wired the following business
day. Proceeds from redemption requests on holidays when wire transfers are
restricted will be wired the following business day. Questions about
telephone redemptions on days when wire transfers are restricted should be
directed to your shareholder services representative at the telephone number
listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Trust, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Trust shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL. Shares may be redeemed in any amount by mailing a
written request to: Federated Shareholder Services Company, P.O. Box 8600,
Boston, MA 02266-8600. If share certificates have been issued, they should
be sent unendorsed with the written request by registered or certified mail
to the address noted above.
The written request should state: the Trust name; the account name as
registered with the Trust; the account number; and the number of shares to
be redeemed or the dollar amount requested. All owners of the account must
sign the request exactly as the shares are registered. Normally, a check for
the proceeds is mailed within one business day, but in no event more than
seven days, after the receipt of a proper written redemption request.
Dividends are paid up to and including the day that a redemption request is
processed.
Shareholders requesting a redemption of any amount to be sent to an address
other than that on record with the Trust or a redemption payable other than
to the shareholder of record must have their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
or any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934. The Trust does not accept signatures guaranteed by a
notary public.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on payment dates in additional shares of the Trust
unless cash payments are requested by writing to the Trust. Shares purchased
by wire before 3:00 p.m. (Eastern time) begin earning dividends that day.
Shares purchased by check begin earning dividends the day after the check is
converted into federal funds.
CAPITAL GAINS. The Trust does not expect to realize any capital gains or
losses. If capital gains or losses were to occur, they could result in an
increase or decrease in dividends. The Trust will distribute in cash or
additional shares any realized net long-term capital gains at least once
every 12 months.
CERTIFICATES AND CONFIRMATIONS. As transfer agent for the Trust, Federated
Shareholder Services Company maintains a share account for each shareholder.
Share certificates are not issued unless requested by contacting the Trust
or Federated Shareholder Services Company in writing. Monthly confirmations
are sent to report all transactions as well as dividends paid during the
month.
ACCOUNTS WITH LOW BALANCES. Due to the high cost of maintaining accounts
with low balances, the Trust may redeem shares in any account, except
accounts maintained by retirement plans, and pay the proceeds to the
shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions. Before shares are redeemed to close
an account, the shareholder is notified in writing and allowed 30 days to
purchase additional shares to meet the minimum requirement.
VOTING RIGHTS. Each share of the Trust owned by a shareholder gives that
shareholder one vote in Trustee elections and other matters submitted to
shareholders for vote. The Trust is not required to hold annual shareholder
meetings. Shareholder approval will be sought only for certain changes in
the Trust's operation and for election of Trustees under certain
circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
TAX INFORMATION
FEDERAL INCOME TAX
The Trust will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such
companies.
Unless otherwise exempt, shareholders are required to pay federal income tax
on any dividends and other distributions received. This applies whether
dividends and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, Trust
shares may be subject to personal property taxes imposed by counties,
municipalities, and school districts in Pennsylvania to the extent that the
portfolio securities in the Trust would be subject to such taxes if owned
directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Trust advertises its total return, yield, and
effective yield.
Yield represents the annualized rate of income earned on an investment over
a seven-day period. It is the annualized dividends earned during the period
on an investment shown as a percentage of the investment. The effective
yield is calculated similarly to the yield, but when annualized, the income
earned by an investment is assumed to be reinvested daily. The effective
yield will be slightly higher than the yield because of the compounding
effect of this assumed reinvestment.
Total return represents the change, over a specified period of time, in the
value of an investment in the Trust after reinvesting all income
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
From time to time, advertisements for the Trust may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Trust's performance to certain indices.
MONEY MARKET TRUST
PORTFOLIO OF INVESTMENTS
JULY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
BANK NOTES -- 1.0%
BANKING -- 1.0%
$ 2,000,000 Commercial Bank, Detroit, MI, 5.700%, 9/3/1996 $ 1,999,976
3,000,000 Mellon Bank NA, Pittsburgh, PA, 5.750% - 5.780%, 9/26/1996 - 10/16/1996 2,999,883
TOTAL BANK NOTES 4,999,859
CERTIFICATE OF DEPOSIT -- 1.9%
BANKING -- 1.9%
10,000,000 Mellon Bank NA, Pittsburgh, PA, 5.680% - 5.750%, 12/10/1996 - 1/28/1997 10,000,000
(A)COMMERCIAL PAPER -- 36.1%
FINANCE - COMMERCIAL -- 17.3%
19,000,000 Asset Securitization Cooperative Corp., 5.445% - 5.494%,
9/19/1996 - 10/16/1996 18,833,939
2,000,000 CIESCO, Inc., 5.476%, 9/19/1996 1,985,300
21,000,000 Corporate Asset Funding Co., Inc. (CAFCO), 5.359% - 5.783%,
8/2/1996 - 1/15/1997 20,854,671
15,000,000 (b)Falcon Asset Securitization Corp., 5.435% - 5.750%,
10/29/1996 - 1/22/1997 14,634,752
20,000,000 General Electric Capital Corp., 5.453% - 5.768%, 11/8/1996 - 1/13/1997 19,610,659
13,000,000 Preferred Receivables Funding Co., (PREFCO), 4.972% - 5.731%,
8/14/1996 - 1/23/1997 12,850,203
Total 88,769,524
FINANCE - RETAIL -- 9.1%
24,000,000 Associates Corp. of North America, 5.321% - 5.691%,
8/1/1996 - 9/24/1996 23,969,010
18,000,000 New Center Asset Trust, A1+/P1 Series, 5.412% - 5.525%,
9/23/1996 - 11/15/1996 17,795,878
5,000,000 Norwest Financial, Inc., 5.314%, 9/17/1996 4,966,578
Total 46,731,466
</TABLE>
MONEY MARKET TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER -- CONTINUED
INSURANCE -- 1.1%
$ 5,900,000 Marsh & McLennan Cos., Inc., 5.797%, 1/10/1997 $ 5,750,524
OIL & OIL FINANCE -- 7.6%
16,000,000 Chevron Transport Corp., (Guaranteed by Chevron Corp.),
5.435% - 5.476%, 9/11/1996 - 10/15/1996 15,860,561
23,000,000 Koch Industries, Inc., 5.681%, 8/1/1996 23,000,000
Total 38,860,561
TELECOMMUNICATIONS -- 1.0%
5,000,000 Ameritech Capital Funding Corp., (Guaranteed by Ameritech Corp.),
5.671%, 12/2/1996 4,905,188
TOTAL COMMERCIAL PAPER 185,017,263
CORPORATE NOTES -- 2.1%
FINANCE - EQUIPMENT -- 0.9%
4,459,897 Case Equipment Loan Trust 1996-A, 5.000%, 2/15/1997 4,458,926
FOOD & BEVERAGE --1.2%
2,000,000 PepsiCo, Inc., 5.750%, 9/6/1996 1,999,851
4,000,000 PepsiCo, Inc., 5.830%, 8/27/1996 4,000,169
Total 6,000,020
TOTAL CORPORATE NOTES 10,458,946
(C)VARIABLE RATE OBLIGATIONS -- 30.5%
BANKING -- 18.4%
10,000,000 Bank One, Columbus, N.A., 5.380%, 8/1/1996 9,991,215
20,000,000 Beverly Hills Nursing Center, Inc., Medilodge Project Series 1996,
(KeyBank, N.A. LOC), 5.630%, 8/8/1996 20,000,000
21,235,000 Kenny, Donald R. and Cheryl A., (Huntington National Bank,
Columbus, OH LOC), 5.580%, 8/8/1996 21,235,000
4,900,000 Melberger, Clifford K. and Ruth B., (PNC Bank, N.A. LOC), 5.559%,
8/5/1996 4,900,000
6,200,000 Scranton Times, L.P., (PNC Bank, N.A. LOC), 5.559%, 8/5/1996 6,200,000
6,300,000 Shamrock Communications, (PNC Bank, N.A. LOC), 5.559%, 8/5/1996 6,300,000
5,000,000 (b)SMM Trust, (Series 1995-B), (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.465%, 8/2/1996 5,000,000
</TABLE>
MONEY MARKET TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(C)VARIABLE RATE OBLIGATIONS -- CONTINUED
BANKING -- CONTINUED
$ 5,000,000 (b)SMM Trust, (Series 1995-N), (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.530%, 8/15/1996 $ 5,000,218
7,000,000 (b)SMM Trust, Series 1996-I, (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.500%, 9/1/1996 7,000,000
3,000,000 (b)SMM Trust, Series 1996-L, (Morgan Guaranty Trust Co., New York
Swap Agreement), 5.465%, 8/15/1996 3,000,000
5,990,000 Westminster Village Terre Haute, Inc., (Huntington National Bank,
Columbus, OH LOC), 5.580%, 8/8/1996 5,990,000
Total 94,616,433
ELECTRICAL EQUIPMENT -- 4.2%
4,382,651 Marta Leasing Ltd., (Guaranteed by General Electric Co.), 5.559%,
8/5/1996 4,382,651
17,422,897 Northwest Airlines, Inc., (Guaranteed by General Electric Co.), 5.585%,
8/5/1996 17,422,897
Total 21,805,548
FINANCE - RETAIL -- 3.9%
20,000,000 Carco Auto Loan Master Trust Series 1993-2, Class A1, 5.550%,
8/15/1996 20,000,000
INSURANCE -- 3.9%
20,000,000 (b)Peoples Security Life Insurance, 5.730%, 9/1/1996 20,000,000
TOTAL VARIABLE RATE OBLIGATIONS 156,421,981
U.S. TREASURY -- 4.9%
U.S. TREASURY NOTES -- 4.9%
25,000,000 7.500%, 1/31/1997 25,284,809
(D)REPURCHASE AGREEMENTS -- 23.5%
24,000,000 BA Securities, Inc., 5.680%, dated 7/31/1996, due 8/1/1996 24,000,000
49,700,000 Goldman Sachs & Company, 5.750%, dated 7/31/1996, due 8/1/1996 49,700,000
24,000,000 PaineWebber, Inc., 5.670%, dated 7/31/1996, due 8/1/1996 24,000,000
23,000,000 UBS Securities, Inc., 5.650%, dated 7/31/1996, due 8/1/1996 23,000,000
TOTAL REPURCHASE AGREEMENTS 120,700,000
TOTAL INVESTMENTS, AT AMORTIZED COST(E) $ 512,882,858
</TABLE>
(a) Each issue shows the rate of discount at the time of purchase for
discount issues, or the coupon for interest bearing issues.
(b) Denotes a restricted security which is subject to restrictions on resale
under Federal Securities laws. At July 31, 1996, these securities amounted
to $54,634,970 which represents 10.64% of net assets.
(c) Current rate and next reset date shown.
(d) The repurchase agreements are fully collateralized by U.S. government
and/or agency obligations based on market prices at the date of the
portfolio. The investments in the repurchase agreements are through
participation in joint accounts with other Federated funds.
(e) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($513,687,208) at July 31, 1996.
The following acronyms are used throughout this portfolio:
LOC -- Letter of Credit
LP -- Limited Partnership
(See Notes which are an integral part of the Financial Statements)
MONEY MARKET TRUST
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investment in repurchase agreements $120,700,000
Investments in other securities 392,182,858
Total investments in securities, at amortized cost $ 512,882,858
Income receivable 1,396,302
Receivable for shares sold 3,432,097
Total assets 517,711,257
LIABILITIES:
Payable for shares redeemed $ 2,103,245
Income distribution payable 1,708,218
Payable to Bank 131,938
Accrued expenses 80,648
Total liabilities 4,024,049
NET ASSETS for 513,687,208 shares outstanding $ 513,687,208
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
($513,687,208 O 513,687,208 shares outstanding) $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MONEY MARKET TRUST
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1996
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $27,315,673
EXPENSES:
Investment advisory fee $ 1,925,061
Administrative personnel and services fee 364,005
Custodian fees 92,691
Transfer and dividend disbursing agent fees and expenses 53,735
Directors'/Trustees' fees 14,018
Auditing fees 13,050
Legal fees 8,752
Portfolio accounting fees 84,953
Shareholder services fee 1,203,163
Share registration costs 21,042
Printing and postage 11,175
Insurance premiums 19,798
Taxes 13,978
Miscellaneous 4,052
Total expenses 3,829,473
Waivers --
Waiver of investment advisory fee $(666,410)
Waiver of shareholder services fee (962,531)
Total waivers (1,628,941)
Net expenses 2,200,532
Net investment income $25,115,141
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MONEY MARKET TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 25,115,141 $ 29,417,799
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (25,115,141) (29,417,799)
SHARE TRANSACTIONS--
Proceeds from sale of shares 2,528,203,824 2,689,667,535
Net asset value of shares issued to shareholders in payment of
distributions declared 4,299,023 4,510,492
Cost of shares redeemed (2,526,087,334) (2,726,889,637)
Change in net assets resulting from share transactions 6,415,513 (32,711,610)
Change in net assets 6,415,513 (32,711,610)
NET ASSETS:
Beginning of period 507,271,695 539,983,305
End of period $ 513,687,208 $ 507,271,695
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MONEY MARKET TRUST
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996
1. ORGANIZATION
Money Market Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a diversified, open-end management
investment company. The investment objective of the Trust is stability of
principal and current income consistent with stability of principal
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS -- The Trust's use of the amortized cost method to
value its portfolio securities is in accordance with Rule 2a-7 under the
Act.
REPURCHASE AGREEMENTS -- It is the policy of the Trust to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Trust to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Trust's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Trust may engage in
when-issued or delayed delivery transactions. The Trust records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES -- Restricted securities are securities that may only
be resold upon registration under federal securities laws or in transactions
exempt from such registration. Many restricted securities may be resold in
the secondary market in transactions exempt from registration. In some
cases, the restricted securities may be resold without registration upon
exercise of a demand feature. Such restricted securities may be determined
to be liquid under criteria established by the Board of Trustees. The Trust
will not incur any registration costs upon such resales. Restricted
securities are valued at amortized cost in accordance with Rule 2a-7 under
the Investment Company Act of 1940.
Additional information on each restricted security held at July 31, 1996 is
as follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <S> <C>
Peoples Security Life Insurance 7/8/96 $20,000,000
SMM Trust Series 1995-B 8/4/95 $ 5,000,000
SMM Trust Series 1995-N 1/31/96 $ 5,000,000
SMM Trust Series 1996-I 5/23/96 $ 7,000,000
SMM Trust Series 1996-L 6/12/96 $ 3,000,000
Falcon Asset Securitization Corp. 4/30/96-7/24/96 $14,634,752
</TABLE>
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
3. SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest (without par value). At
July 31, 1996, capital paid-in aggregated $513,687,208. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1996 1995
<S> <C> <C>
Shares sold 2,528,203,824 2,689,667,535
Shares issued to shareholders in payment of distributions declared 4,299,023 4,510,492
Shares redeemed (2,526,087,334) (2,726,889,637)
Net change resulting from share transactions 6,415,513 (32,711,610)
</TABLE>
4. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE -- Federated Research, the Trust's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to 0.40% of the Trust's average daily net assets. The
Adviser will waiver, to the extent of its advisory fee, the amount, if any,
by which the Trust's aggregate annual operating expenses (excluding
interest, taxes, brokerage commissions, expenses of registering and
qualifying the Trust and its shares under federal and state law, expenses of
withholding taxes, and extraordinary expenses) exceed 0.45% of average daily
net assets of the Trust.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Trust with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
SHAREHOLDER SERVICES FEE -- Under the terms of a Shareholder Services
Agreement with Federated Shareholder Services, ("FSS") the Trust will pay
Federated Shareholder Services up to 0.25% of daily average net assets of
the Trust for the period. The fee paid to FSS is used to finance certain
services for shareholders and to maintain shareholder accounts. FSS may
voluntarily choose to waive any portion of its fee. Federated Shareholder
Services can modify or terminate this voluntary waiver at any time at its
sole discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Trust. The fee paid to FSSC
is based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- Fserv maintains the Trust's accounting records
for which it receives a fee. The fee is based on the level of the Trust's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Trust are Officers
and Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
MONEY MARKET TRUST:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of Money Market Trust as of July 31,
1996, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended July 31, 1996 and
1995, and the financial highlights for the periods presented. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned at July 31, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Money Market
Trust as of July 31, 1996, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
August 30, 1996
ADDRESSES
Money Market Trust Federated Investors Tower
Pittsburgh, PA 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
Investment Adviser
Federated Research Federated Investors Tower
Pittsburgh, PA 15222-3779
Custodian
State Street Bank and P.O. Box 8600
Trust Company Boston, MA 02105-8600
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder P.O. Box 8600
Services Company Boston, MA 02266-8600
Independent Auditors
Deloitte & Touche LLP 2500 One PPG Place
Pittsburgh, PA 15222-5401
MONEY MARKET TRUST
PROSPECTUS
An Open-End, Management
Investment Company
Prospectus dated September 30, 1996
[Graphic]
Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 609900105
8083102A (9/96)
MONEY MARKET TRUST
PORTFOLIO OF INVESTMENTS
JULY 31, 1996
MONEY MARKET TRUST
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Money Market Trust (the ``Trust') dated September 30,
1996. This Statement is not a prospectus. You may request a copy of a
prospectus or a paper copy of this Statement, if you have received it
electronically, free of charge by calling 1-800-341-7400.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated September 30, 1996.
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip 609900105
8083102B (9/96)
TABLE OF CONTENTS
INVESTMENT POLICIES 1
Acceptable Investments 1
U.S. Government Securities 1
Bank Instruments 1
Ratings 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 1
Credit Enhancement 2
Investment Risks 2
INVESTMENT LIMITATIONS 2
Regulatory Compliance 3
MONEY MARKET TRUST MANAGEMENT 4
Share Ownership 8
Trustees' Compensation 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
Investment Adviser 9
Advisory Fees 10
BROKERAGE TRANSACTIONS 10
OTHER SERVICES 10
Trust Administration 10
Custodian and Portfolio Accountant 11
Transfer Agent 11
Independent Auditors 11
SHAREHOLDER SERVICES AGREEMENT 11
DETERMINING NET ASSET VALUE 11
REDEMPTION IN KIND 12
MASSACHUSETTS PARTNERSHIP LAW 12
THE TRUST'S TAX STATUS 12
PERFORMANCE INFORMATION 12
Yield 12
Effective Yield 12
Total Return 12
Performance Comparisons 13
Economic and Market Information 13
ABOUT FEDERATED INVESTORS 13
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may not be changed
by the Board of Trustees without shareholder approval.
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or
any guarantor of either the security or any demand feature.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Trust may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are backed
by:
othe full faith and credit of the U.S. Treasury;
othe issuer's right to borrow from the U.S. Treasury;
othe discretionary authority of the U.S. government to purchase
certain obligations of agencies or instrumentalities; or
othe credit of the agency or instrumentality issuing the obligations.
BANK INSTRUMENTS
The instruments of banks and savings associations whose deposits are
insured by the Bank Insurance Fund (`BIF'') or the Savings Association
Insurance Fund (`SAIF''), such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances, are not necessarily
guaranteed by those organizations. In addition to domestic bank
instruments, the Trust may invest in: Eurodollar Certificates of Deposit
issued by foreign branches of U.S. or foreign banks; Eurodollar Time
Deposits, which are U.S. dollar-denominated deposits in foreign branches of
U.S. or foreign banks; Canadian Time Deposits, which are U.S. dollar-
denominated deposits issued by branches of major Canadian banks located in
the United States; and Yankee Certificates of Deposit, which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of
foreign banks and held in the United States.
RATINGS
The securities in which the the Trust invests must be rated in the highest
short-term rating category by one or more nationally recognized statistical
rating organizations (`NRSROs'') or be of comparable quality to securities
having such ratings. An NRSRO's highest rating category is determined
without regard for sub-categories and gradations. For example, securities
rated A-1 or A-1+ by Standard & Poor's Ratings Group (`S&P''), Prime-1 by
Moody's Investors Service, Inc. (`Moody's''), or F-1 (+ or -) by Fitch
Investors Service, Inc. (`Fitch'') are all considered rated in the highest
short-term rating category. The Trust will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated
as being in the highest short-term rating category; currently, such
securities must be rated by two NRSROs in their highest rating category.
See `Regulatory Compliance.''
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an
advantageous price or yield for the Trust. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the
Trust in a dollar amount sufficient to make payment for the securities to
be purchased are: segregated on the Trust`s records at the trade date;
marked to market daily; and maintained until the transaction is settled.
The Trust does not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20%
of the total value of its assets.
REPURCHASE AGREEMENTS
The Trust believes that under the regular procedures normally in effect for
custody of the Trust's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Trust and allow retention or disposition of such securities. The Trust will
only enter into repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are deemed by the
Trust's adviser to be creditworthy pursuant to guidelines established by
the Trustees.
CREDIT ENHANCEMENT
The Trust typically evaluates the credit quality and ratings of credit-
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the `credit enhancer''), rather
than the issuer. Generally, the Trust will not treat credit-enhanced
securities as being issued by the credit enhancer for diversification
purposes. However, under certain circumstances applicable regulations may
require the Trust to treat securities as having been issued by both the
issuer and the credit enhancer.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are
subject to different risks than domestic obligations of domestic banks or
corporations. Examples of these risks include international economic and
political developments, foreign governmental restrictions that may
adversely affect the payment of principal or interest, foreign withholding
or other taxes on interest income, difficulties in obtaining or enforcing a
judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions. Risks may
also exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their domestic or foreign branches, are not necessarily
subject to the same regulatory requirements that apply to domestic banks,
such as reserve requirements, loan limitations, examinations, accounting,
auditing, recordkeeping, and the public availability of information. These
factors will be carefully considered by the Trust's adviser in selecting
investments for the Trust.
INVESTMENT LIMITATIONS
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 or in an amount up to one-third of
the value of its total assets, including the amount borrowed, in order to
meet redemption requests without immediately selling any portfolio
securities (any such borrowings under this section will not be
collateralized).
PLEDGING ASSETS
The Trust will not pledge securities.
INVESTING IN COMMODITIES, MINERALS, OR REAL ESTATE
The Trust will not invest in commodities, commodity contracts, oil, gas, or
other mineral programs or real estate, except that it may purchase money
market instruments issued by companies which invest in or sponsor interests
therein.
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 restricted securities which the Trust may purchase
pursuant to its investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Trust will not lend any assets of the Trust, except that it may
purchase or hold money market instruments, including repurchase agreements
and variable amount and variable rate notes, permitted by its investment
objective and policies.
ACQUIRING SECURITIES
The Trust will not acquire the voting securities of any issuers. It will
not invest in securities issued by any other investment company, except as
part of a merger, consolidation, or other acquisition. It will not invest
in securities of a company for the purpose of exercising control or
management.
DIVERSIFICATION OF INVESTMENTS
The Trust will not invest more than 5% of its total assets in the
securities of any one issuer (except cash or cash items, repurchase
agreements, and securities issued by the U.S. government, its agencies, or
instrumentalities).
INVESTING IN RESTRICTED SECURITIES
The Trust will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the Federal securities laws (except
for commercial paper issued under Section 4(2) of the Securities Act of
1933).
INVESTING IN NEW ISSUERS
The Trust will not invest more than 5% of the value of its total assets in
securities of unseasoned issuers which have records of less than three
years of continuous operations, including the operation of any predecessor.
INVESTING IN PUT AND CALL OPTIONS
The Trust will not invest in puts, calls, straddles, spreads, or any
combination thereof.
INVESTING IN FOREIGN SECURITIES
The Trust will not invest in foreign securities which are not publicly
traded in the United States.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS OF THE TRUST
The Trust will not purchase or retain the securities issued by an issuer,
any of whose officers, directors, or security holders is an officer,
Director, or Trustee of the Trust or its investment adviser if, after the
purchase of the securities of such issuer by the Trust, one or more of
those officers, Directors, and Trustees owning individually more than 1/2
of 1% of the issuer's securities, together own beneficially more than 5% of
the issuer's securities.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if as a result of such purchase more
than 25% of the value of its total assets would be invested in any one
industry. However, investing in bank instruments such as time and demand
deposits and certificates of deposit, U.S. Treasury Bills or securities
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements for Government securities, shall
not be considered investments in any one industry.
ISSUING SENIOR SECURITIES
The Trust will not issue senior securities.
The above limitations cannot be changed without shareholder approval.
For purposes of the above limitations, the Trust considers instruments
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." Except with respect to borrowing
money, if a percentage limitation is adhered to at the time of investment,
a later increase or decrease in percentage resulting from any change in
value or net assets will not result in a violation of such limitation.
The Trust did not borrow money or pledge securities in excess of 5% of the
value of its net assets during the last fiscal year and has no present
intent to do so during the coming fiscal year.
REGULATORY COMPLIANCE
The Trust may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in
the prospectus and this Statement of Additional Information, in order to
comply with applicable laws and regulations, including the provisions of
and regulations under the Investment Company Act of 1940. In particular,
the Trust will comply with the various requirements of Rule 2a-7, which
regulates money market mutual funds. For example, 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.
MONEY MARKET TRUST MANAGEMENT
Officers and Trustees are listed with their addresses, birthdates, present
positions with Money Market Trust, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport
Research, Ltd.; Chief Executive Officer and Director or Trustee of the
Funds. .
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Trustee,
University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John
R. Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.;
Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Trustee of the
Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center - Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly, Hematologist,
Oncologist, and Internist, Presbyterian and Montefiore Hospitals; Director
or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny, & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
Seacliff
562 Bellevue Avenue
Newport, RI
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street
Boston Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
Miller, Ament, Henny, & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica,
Murray and Hogue; Director or Trustee of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., National Defense University, U.S. Space Foundation
and Czech Management Center; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy and
Technology, Federal Emergency Management Advisory Board and Czech
Management Center; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public relations/Marketing/Conference Planning, Manchester Craftsmen's
Guild; Restaurant Consultant, Frick Art & History Center; Conference
Coordinator, University of Pittsburgh Art History Department; Director or
Trustee of the Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated
Research Corp., Federated Global Research Corp. and Passport Research,
Ltd.; Executive Vice President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company; Trustee or Director of
some of the Funds; President, Executive Vice President and Treasurer of
some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated Research;
Director, Federated Research Corp. and Federated Global Research Corp.;
Trustee, Federated Shareholder Services Company; Director, Federated
Services Company; President and Trustee, Federated Shareholder Services;
Director, Federated Securities Corp.; Executive Vice President and
Secretary of the Funds; Treasurer of some of the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some
of the Funds; Director or Trustee of some of the Funds.
*This Trustee is deemed to be an ``interested person'' as defined in
the Investment Company Act of 1940.
@Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, `Funds'' includes the
following investment companies:
111 Corcoran Funds; Annuity Management Series; Arrow Funds; Automated
Government Money Trust; Blanchard Funds; Blanchard Precious Metals Fund,
Inc.; Cash Trust Series II; Cash Trust Series, Inc. ; DG Investor Series;
Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate
U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income Fund,
Inc.; Federated Fund for U.S. Government Securities, Inc.; Federated GNMA
Trust; Federated Government Income Securities, Inc.; Federated Government
Trust; Federated High Income Bond Fund, Inc.; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated Index
Trust; Federated Institutional Trust; Federated Insurance Series; Federated
Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated
Short-Term Municipal Trust; Federated Short-Term U.S. Government Trust;
Federated Stock and Bond Fund, Inc.; Federated Stock Trust; Federated Tax-
Free Trust; Federated Total Return Series, Inc.; Federated U.S. Government
Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Utility Fund, Inc.; High
Yield Cash Trust; Intermediate Municipal Trust; International Series, Inc.;
Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst Funds;
The Starburst Funds II; The Virtus Funds; Trust for Financial Institutions;
Trust for Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust`s
outstanding shares. [If this group owns 1% or more, you must disclose the
total shares owned and the actual percentage of the outstanding shares
represented by that ownership as a group.]
As of September 3, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of the Trust: Fiduciary Trust Company
International, New York, NY, owned approximately 68,200,800 shares
(13.53%); and The Brotherhood Bank & Trust Company, Kansas City, KS, owned
approximately 30,726,008 shares (6.10%).
TRUSTEES' COMPENSATION
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM
TRUST TRUST*#
John F. Donahue, $ 0 $-0- for the Trust and
Chairman and Trustee 54 other investment companies in
the Fund Complex
Thomas G. Bigley++ $ 1,490.01 $86,331 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John T. Conroy $ 1,619.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
William J. Copeland $ 1,619.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
James E. Dowd $ 1,619.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Lawrence D. Ellis, M.D. $ 1,490.01 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Edward L. Flaherty, Jr. $ 1,619.63 $115,760 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Peter E. Madden $ 1,490.01 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Gregor F. Meyer $ 1,490.01 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
John E. Murray, Jr. $ 1,490.01 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Wesley W. Posvar $ 1,490.01 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
Marjorie P. Smuts$ 1,490.01 $104,898 for the Trust and
Trustee 54 other investment companies in the Fund
Complex
*Information is furnished for the fiscal year ended July 31, 1996.
#The aggregate compensation is provided for the Trust.
++Mr. Bigley served on 39 investment companies in the Federated Funds
Complex from January 1 through
September 30, 1995. On October, 1995, he was appointed a Trustee on 15
additional Federated Funds.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Trust's investment adviser is Federated Research. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife and
his son, J. Christopher Donahue.
The adviser shall not be liable to the Trust or any shareholder for any
losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Research receives an annual investment
advisory fee as described in the prospectus. For the fiscal years ended
July 31, 1996, 1995, and 1994, the adviser earned $1,925,061, $2,213,807,
and $2,520,096, respectively, of which $666,410, $803,723, and $727,018,
respectively, were waived.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares
are registered for sale in those states. If the Trust's normal
operating expenses (including the investment advisory fee, but not
including brokerage commissions, interest, taxes, and extraordinary
expenses) exceed 2-1/2% per year of the first $30 million of average
net assets, 2% per year of the next $70 million of average net assets,
and 1-1/2% per year of the remaining average net assets, the adviser
will reimburse the Trust for its expenses over the limitation.
If the Trust's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser
will be limited, in any single fiscal year, by the amount of the
investment advisory fees.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the adviser will generally
use those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. The adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to guidelines established by the
Trustees. The adviser may select brokers and dealers who offer brokerage
and research services. These services may be furnished directly to the
Trust or to the adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and
similar services. Research services provided by brokers and dealers may be
used by the adviser or its affiliates in advising the Trust and other
accounts. To the extent that receipt of these services may supplant
services for which the adviser or its affiliates might otherwise have paid,
it would tend to reduce their expenses. The adviser and its affiliates
exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided.
Although investment decisions for the Trust are made independently from
those of the other accounts managed by the adviser, investments of the type
the Trust may make may also be made by those other accounts. When the Trust
and one or more other accounts managed by the adviser are prepared to
invest in, or desire to dispose of, the same security, available
investments or opportunities for sales will be allocated in a manner
believed by the adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Trust or
the size of the position obtained or disposed of by the Trust. In other
cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Trust.
OTHER SERVICES
TRUST ADMINISTRATION
Federated Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services to the Trust for a fee as described
in the prospectus. From March 1, 1994 to March 1, 1996, Federated
Administrative Services served as the Trust's Administrator. Prior to March
1, 1994, Federated Services Company served as the Trust's Administrator.
Both former Administrators are subsidiaries of Federated Investors. For
purposes of this Statement of Additional Information, Federated Services
Company, Federated Administrative Services and Federated Administrative
Services, Inc. may hereinafter collectively be referred to as the
`Administrators.'' For the fiscal years ended July 31, 1996, 1995 and
1994, the Administrators earned $364,005, $418,963, and $516,405,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, MA, is custodian for the
securities and cash of the Trust. Federated Services Company, Pittsburgh,
PA, provides certain accounting and recordkeeping services with respect to
the Trust's portfolio investments. The fee paid for this service is based
upon the level of the Trust's average net assets for the period plus out-
of-pocket expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary shareholder
records. For its services, the transfer agent receives a fee based on the
number of shareholder accounts.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP,
Pittsburgh, PA.
SHAREHOLDER SERVICES AGREEMENT
This arrangement permits the payment of fees to Federated Shareholder
Services and financial institutions to cause services to be provided which
are necessary for the maintenance of shareholder accounts and to encourage
personal services to shareholders by a representative who has knowledge of
the shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to: providing office space,
equipment, telephone facilities, and various clerical, supervisory,
computer, and other personnel as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses. By
adopting the Shareholder Services Agreement, the Board of Trustees expects
that the Trust will benefit by: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay and
administrative detail; (3) enhancing shareholder recordkeeping systems; and
(4) responding promptly to shareholders' requests and inquiries concerning
their accounts. For the fiscal period ending July 31, 1996, the Trust
incurred shareholder service fees in the amount of $1,203,163, $962,531 of
which was paid to financial institutions.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization
of premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares
of the Trust computed by dividing the annualized daily income on the
Trust's portfolio by the net asset value computed as above may tend to be
higher than a similar computation made by using a method of valuation based
upon market prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule 2a-7
(the `Rule'') promulgated by the Securities and Exchange Commission under
the Investment Company Act of 1940. Under the Rule, the Trustees must
establish procedures reasonably designed to stabilize the net asset value
per share, as computed for purposes of distribution and redemption, at
$1.00 per share, taking into account current market conditions and the
Trust's investment objective. The procedures include monitoring the
relationship between the amortized cost value per share and the net asset
value per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there is a
difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material
dilution or other unfair results arising from differences between the two
methods of determining net asset value.
REDEMPTION IN KIND
The Trust is obligated to redeem shares solely in cash up to $250,000 or 1%
of the Trust's net asset value, whichever is less, for any one shareholder
within a 90-day period. Any redemption beyond this amount will also be in
cash unless the Trustees determine that further payments should be in kind.
In such cases, the Trust will pay all or a portion of the remainder of the
redemption in portfolio instruments valued in the same way as the Trust
determines net asset value. The portfolio instruments will be selected in a
manner that the Trustees deem fair and equitable. Redemption in kind is
not as liquid as a cash redemption. If redemption is made in kind,
shareholders who sell these securities could receive less than the
redemption value and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect
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 by the Declaration of Trust 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.
THE TRUST'S TAX STATUS
To qualify for the special tax treatment afforded to regulated investment
companies, the Trust must, among other requirements: derive at least 90%
of its gross income from dividends, interest, and gains from the sale of
securities; derive less than 30% of its gross income from the sale of
securities held less than three months; invest in securities within certain
statutory limits; and distribute to its shareholders at least 90% of its
net income earned during the year.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average
portfolio maturity; type of instruments in which the portfolio is invested;
changes in interest rates; changes in expenses; and the relative amount of
cash flow. To the extent that financial institutions and broker/dealers
charge fees in connection with services provided in conjunction with an
investment in shares of the Trust, the performance will be reduced for
those shareholders paying those fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the `base period.'' This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net
change excluding capital changes but including the value of any additional
shares purchased with dividends earned from the original one share and all
dividends declared on the original and any purchased shares; dividing the
net change in the account's value by the value of the account at the
beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7.
The Trust's yield for the seven-day period ended July 31, 1996, was 5.04%.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to
the 365/7th power; and subtracting 1 from the result. The Trust's effective
yield for the seven-day period ended July 31, 1996, was 5.17%.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a
given period that would equate a $1,000 initial investment to the ending
redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period
by the net asset value per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, adjusted over the
period by any additional shares, assuming the monthly reinvestment of all
dividends and distributions.
The Trust's average annual total returns for the one- ,five- and ten-year
periods ended July 31, 1996, were 5.31%, 4.28% and 5.86%, respectively.
PERFORMANCE COMPARISONS
Investors may use financial publications and/or indices to obtain a more
complete view of the Trust's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which the Trust
uses in advertising may include:
OLIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
oDONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's Money Market Insight publication
reports monthly and 12-month-to-date investment results for the same
money funds.
oMONEY, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective
yield.
oSALOMON 30-DAY CD INDEX compares rate levels of 30-day certificates
of deposit from the top ten prime representative banks.
Advertisements and other sales literature for the Trust may quote total
returns which are calculated on nonstandardized base periods. These total
returns represent the historic change in the value of an investment in the
Trust based on monthly reinvestment of dividends over a specific period of
time.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Trust's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Trust
can compare its performance, or performance for the types of securities in
which it invests, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Trust may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Trust portfolio managers and their views and analysis
on how such developments could affect the Funds. In addition, advertising
and sales literature may quote statistics and give general information
about the mutual fund industry, including the growth of the industry, from
sources such as the Investment Company Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making-structured, straightforward,
and consistent. This has resulted in a history of competitive performance
with a range of competitive investment products that have gained the
confidence of thousands of clients and their customers.
The company's disciplined security selection process is firmly rooted in
sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio managers,
analysts, and traders dedicated to specific market sectors. These traders
handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in the
mutual fund industry in 1974 with the creation of the first institutional
money market fund. Simultaneously, the company pioneered the use of the
amortized cost method of accounting for valuing shares of money market
funds, a principal means used by money managers today to value money market
fund shares. Other innovations include the first institutional tax-free
money market fund. As of December 31, 1995, Federated Investors managed
more than $40.2 billion in assets across approximately 47 money market
funds, including 17 government, 10 prime and 20 municipal with assets
approximating $20.9 billion, $11.5 billion and $7.8 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated Investors'
equity and high yield corporate bond management while William D. Dawson,
Executive Vice President, oversees Federated Investors' domestic fixed
income management. Henry A. Frantzen, Executive Vice President, oversees
the management of Federated Investors' international portfolios.
MUTUAL FUND MARKET
Twenty-seven percent of American households are pursuing their financial
goals through mutual funds. These investors, as well as businesses and
institutions, have entrusted over $3 trillion to the more than 5,500 funds
available.*
Federated Investors, through its subsidiaries, distributes mutual funds for
a variety of investment applications. Specific markets include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and mutual
funds for a variety of applications, including defined benefit and defined
contribution programs, cash management, and asset/liability management.
Institutional clients include corporations, pension funds, tax-exempt
entities, foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional clients is
headed by John B. Fisher, President, Institutional Sales Division.
TRUST ORGANIZATIONS
Other institutional clients include close relationships with more than
1,500 banks and trust organizations. Virtually all of the trust divisions
of the top 100 bank holding companies use Federated funds in their clients'
portfolios. The marketing effort to trust clients is headed by Mark R.
Gensheimer, Executive Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage firms
nationwide--including 200 New York Stock Exchange firms--supported by more
wholesalers than any other mutual fund distributor. Federated's service to
financial professionals and institutions has earned it high ranking in
several DALBAR Surveys. The marketing effort to these firms is headed by
James F. Getz, President, Broker/Dealer Division.
*Source: Investment Company Institute
