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 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, 1997, with the Securities and Exchange Commission
("SEC"). The information contained in the Statement of Additional
Information is incorporated by reference into this prospectus. You may
request a copy of the Statement of Additional Information or a paper
copy of this prospectus, if you have received your prospectus
electronically, free of charge by calling 1-800-341-7400. To obtain
other information, or make inquiries about the Trust, contact the
Trust at the address listed in the back of this prospectus. The
Statement of Additional Information, material incorporated by
reference into this document, and other information regarding the
Trust is maintained electronically with the SEC at Internet Web site
(http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated September 30, 1997
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 Risks 5
Investment Limitations 5
Trust Information 5
Management of the Trust 5
Distribution of Shares 6
Administration of the Trust 6
Net Asset Value 6
How to Purchase Shares 6
Purchasing Shares by Wire 7
Automatic Investments 7
Purchasing Shares by Check 7
Subaccounting Services 7
How to Redeem Shares 7
Redeeming Shares by Telephone 7
Redeeming Shares by Mail 8
Account and Share Information 8
Dividends 8
Capital Gains 8
Confirmations and
Account Statements 8
Accounts with Low Balances 8
Voting Rights 8
Tax Information 8
Federal Income Tax 8
State and Local Taxes 9
Performance Information 9
Financial Statements 10
Independent Auditors' Report 19
</TABLE>
SUMMARY OF TRUST EXPENSES
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) (As a percentage of average net assets) Management Fee (after
waiver)(1)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <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
<CAPTION>
ANNUAL OPERATING EXPENSES
<S> <C> <C>
Management Fee (after waiver)(1) 0.27%
12b-1 Fee None
Total Other Expenses 0.19%
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 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
waiver of a portion of the shareholder services fee. The shareholder
service provider can terminate this waiver at any time at its sole
discretion. The maximum shareholder services fee is 0.25%.
(3) The total operating expenses would have been 0.79% absent the
waivers of portions of the management fee and 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
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.
<S> <C>
1 Year $ 5
3 Years $15
5 Years $26
10 Years $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.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the of Independent Auditors' Report on page 19.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
VALUE,
BEGINNING OF
PERIOD
INCOME FROM
INVESTMENT
OPERATIONS
Net investment 0.05 0.05 0.05 0.03 0.03 0.04 0.07 0.08 0.09 0.07
income
LESS
DISTRIBUTIONS
Distributions (0.05) (0.05) (0.05) (0.03) (0.03) (0.04) (0.07) (0.08) (0.09) (0.07)
from net investment
income
NET ASSET $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
VALUE, END OF
PERIOD
TOTAL 5.19% 5.31% 5.42% 3.18% 3.00% 4.49% 7.05% 8.43% 8.93% 6.94%
RETURN(A)
RATIOS TO
AVERAGE NET
ASSETS
Expenses 0.46% 0.46% 0.46% 0.46% 0.46% 0.46% 0.46% 0.46% 0.45% 0.45%
Net investment 5.09% 5.22% 5.32% 3.11% 2.98% 4.40% 6.88% 8.14% 8.58% 6.72%
income
SUPPLEMENTAL
DATA
Net assets, $464,012 $513,687 $507,272 $539,983 $712,577 $943,893 $956,538 $1,189,023 $1,649,683 $1,685,914
end of period
(000 omitted)
</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
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 unless otherwise indicated
cannot be changed by the Board of Trustees (the "Trustees") without
shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
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 ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). 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, default, or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to the
Trust and affect its share price.
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.
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, which
can be purchased without limitation), non-negotiable time deposits,
and repurchase agreements providing for settlement in more than seven
days after notice, to 10% of its total assets.
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
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.
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 0.40%
of the Trust's average daily net assets. 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 0.45% 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 $110 billion
invested across over 300 funds under management and/or administration
by its subsidiaries, as of December 31, 1996, Federated Investors is
one of the largest mutual fund investment managers in the United
States. With more than 2,000 employees, Federated continues to be led
by the management who founded the company in 1955. Federated funds are
presently at work in and through 4,500 financial institutions
nationwide.
Both the Trust and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage the Trust and its
portfolio securities. These codes recognize that such persons owe a
fiduciary duty to the Trust's shareholders and must place the
interests of shareholders ahead of the employees' own 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 0.25% of the average
daily net asset value of its shares, computed at an annual rate, to
obtain certain personal services for shareholders and to maintain
shareholder accounts. From time to time and for such periods as deemed
appropriate, the amount stated above may be reduced voluntarily. Under
the Shareholder Services Agreement, Federated Shareholder Services
will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial
institutions will receive fees based upon shares owned by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid will be determined from time to time by
the Trust and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Shareholder Services
Agreement, Federated Securities Corp. and Federated Shareholder
Services, from their own assets, may pay financial institutions
supplemental fees for the performance of substantial sales services,
distribution-related support services, or shareholder services. The
support may include sponsoring sales, educational and training
seminars for their employees, providing sales literature, and
engineering computer software programs that emphasize the attributes
of the Trust. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the
type and nature of sales or marketing support furnished by the
financial institution. Any payments made by the distributor may be
reimbursed by the Trust's investment adviser or its affiliates.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors,
provides administrative personnel and services (including certain
legal and financial reporting services) necessary to operate the Trust
at an annual rate 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
FEE DAILY NET ASSETS
<C> <S>
0.150% on the first $250 million
0.125% on the next $250 million
0.100% on the next $250 million
0.075% 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, Martin Luther King 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.
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.
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.
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.
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.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In
addition, shareholders will receive periodic statements reporting all
account activity, including dividends paid. The Trust will not issue
share certificates.
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, Donnelly & Meck, counsel to the Trust,
Trust shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Trust would be subject to
such taxes if owned directly by residents of those jurisdictions.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Trust advertises its yield, effective yield and
total return.
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.
PORTFOLIO OF INVESTMENTS
MONEY MARKET TRUST
JULY 31, 1997
PRINCIPAL
AMOUNT VALUE
SHORT-TERM NOTES--10.1%
FINANCE - AUTOMOTIVE--0.9%
$4,230,205 Chase Manhattan Auto Owner Trust 1997-A,
5.545%, 4/10/1998 $ 4,230,205
FINANCE - EQUIPMENT--3.7%
1,486,351 Capita Equipment Receivables Trust
1996-1, 5.600%, 10/15/1997 1,486,351
15,475,511 Caterpillar Financial Asset Trust
1997-A, 5.791%, 5/25/1998 15,475,511
TOTAL 16,961,862
INSURANCE--5.5%
18,336,625 Arcadia Auto Receivables Trust 1997-B,
(FSA Gtd.) 5.743%, 18,336,625
6/15/1998
2,120,520 Olympic Automobile Receivables
Trust 1997-A, (FSA Gtd.) 2,120,520
5.500%, 3/15/1998
5,266,313 WFS Financial Owner Trust 1997-A,
(FSA Gtd.) 5.630%, 5,266,313
3/20/1998
TOTAL 25,723,458
TOTAL SHORT-TERM NOTES 46,915,525
CERTIFICATES OF DEPOSIT--5.4%
BANKING--5.4%
5,000,000 Mellon Bank N.A., Pittsburgh, 5.850%, 10/7/1997 5,000,000
20,000,000 Morgan Guaranty Trust Co., New York,
5.90%, 9/30/1997 20,002,812
TOTAL CERTIFICATES OF DEPOSIT 25,002,812
(A)COMMERCIAL PAPER--37.7%
BROKERAGE--4.5%
5,000,000 Goldman Sachs Group, LP, 5.608%, 10/9/1997 4,947,004
16,000,000 Merrill Lynch & Co., Inc., 5.628% - 5.762%,
8/18/1997 - 15,909,942
10/6/1997
TOTAL 20,856,946
FINANCE - COMMERCIAL--22.5%
7,000,000 Asset Securitization Cooperative Corp.,
5.717% - 5.825%, 6,897,205
8/18/1997 - 12/3/1997
15,000,000 CIT Group Holdings, Inc.,
5.380% - 5.389%, 8/15/1997 - 14,965,905
8/19/1997
22,632,000 Falcon Asset Securitization Corp.,
5.580% - 5.736%, 8/11/1997 22,496,386
- 10/27/1997
21,000,000 General Electric Capital Corp.,
5.465% - 5.858%, 8/11/1997 - 20,660,300
1/15/1998
23,000,000 Preferred Receivables Funding Co., (PREFCO),
5.600% - 5.941%, 22,809,819
8/12/1997 - 10/29/1997
17,000,000 Sheffield Receivables Corp., 5.650%-5.660%, 16,871,298
9/16/1997-9/23/1997
TOTAL 104,700,913
MONEY MARKET TRUST
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(A)COMMERCIAL PAPER--CONTINUED
FINANCE - RETAIL--4.5%
$ 13,000,000 Associates Corp. of North America, 5.371% - 5.596%, 8/26/1997 $ 12,903,478
- 10/28/1997
8,000,000 New Center Asset Trust, A1+/P1 Series, 5.465% - 5.896%, 7,937,391
8/4/1997 - 10/17/1997
TOTAL 20,840,869
OIL & OIL FINANCE--6.2%
19,000,000 Chevron Transport Corp., (Guaranteed by Chevron Corp.), 18,724,734
5.581% - 5.657%, 9/9/1997 - 1/27/1998
10,000,000 Koch Industries, Inc., 5.901%, 8/1/1997 10,000,000
TOTAL 28,724,734
TOTAL COMMERCIAL PAPER 175,123,462
CORPORATE NOTE--3.2%
BROKERAGE--3.2%
15,000,000 (b)Goldman Sachs & Co., 5.670%, 10/28/1997 15,000,000
(C)VARIABLE RATE OBLIGATIONS--29.1%
BANKING--15.1%
3,855,000 500 South Front St. LP, Series A, (Huntington National Bank, 3,855,000
Columbus, OH LOC), 5.650%, 8/7/1997
10,000,000 Bank One, Milwaukee, WI, N.A., 5.510%, 8/5/1997 9,998,637
19,570,000 Beverly Hills Nursing Center, Inc., Medilodge Project Series 19,570,000
1996, (KeyBank, N.A. LOC), 5.700%, 8/7/1997
20,815,000 Kenny, Donald R. and Cheryl A., (Huntington National Bank, 20,815,000
Columbus, OH LOC), 5.650%, 8/7/1997
4,900,000 Scranton Times, LP, (PNC Bank, N.A. LOC), 5.690%, 8/4/1997 4,900,000
5,000,000 Scranton Times, LP, Series 1997, (PNC Bank, N.A. LOC), 5,000,000
5.690%, 8/4/1997
5,990,000 Westminster Village Terre Haute, Inc., (Huntington National 5,990,000
Bank, Columbus, OH LOC), 5.650%, 8/7 /1997
TOTAL 70,128,637
ELECTRICAL EQUIPMENT--5.4%
3,700,000 Alabama State IDA, General Electric Project, (General 3,700,000
Electric Co. LOC), 5.600%, 8/7/1997
3,681,426 Marta Leasing Ltd., (Guaranteed by General Electric Co.), 3,681,426
5.690%, 8/4/1997
17,422,897 Northwest Airlines, Inc., (Guaranteed by General Electric 17,422,897
Co.), 5.580%, 8/4/1997
TOTAL 24,804,323
FINANCE - RETAIL--4.3%
20,000,000 Carco Auto Loan Master Trust, Series 1993-2, Class A1, 20,000,000
5.695%, 8/15/1997
INSURANCE--4.3%
20,000,000 (b)Peoples Security Life Insurance Company, 5.840%, 9/1/1997 20,000,000
TOTAL VARIABLE RATE OBLIGATIONS 134,932,960
</TABLE>
MONEY MARKET TRUST
<TABLE>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(D)REPURCHASE AGREEMENTS--14.2%
$ 5,000,000 Bear, Stearns and Co., 5.770%, dated 7/31/1997, due 8/1/1997 $ 5,000,000
15,000,000 Chase Government Securities, Inc., 5.870%, dated 7/31/1997, 15,000,000
due 8/1/1997
8,000,000 Fuji Government Securities, Inc., 5.800%, dated 7/31/1997, 8,000,000
due 8/1/1997
15,000,000 Goldman Sachs Group LP, 5.850%, dated 7/31/1997, due 8/1/1997 15,000,000
15,000,000 Greenwich Capital Markets, Inc., 5.850%, dated 7/31/1997, due 15,000,000
8/1/1997
8,000,000 PaineWebber Group, Inc., 5.790%, dated 7/31/1997, due 8,000,000
8/1/1997
TOTAL REPURCHASE AGREEMENTS 66,000,000
TOTAL INVESTMENTS (AT AMORTIZED COST(E) $ 462,974,759
</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, 1997, these
securities amounted to$35,000,000 which represents 7.5% 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
($464,011,919) at July 31, 1997. The following acronyms are used throughout
this portfolio:
FSA --Financial Security Assurance
IDA --Industrial Development Authority
LOC --Letter of Credit
LP --Limited Partnership
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF ASSETS AND LIABILITIES
MONEY MARKET TRUST
JULY 31, 1997
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 66,000,000
Investments in securities 396,974,759
Total investments in securities, at amortized cost and value $ 462,974,759
Income receivable 1,845,550
Receivable for shares sold 1,094,939
Total assets 465,915,248
LIABILITIES:
Payable for shares redeemed 43,481
Income distribution payable 1,623,159
Payable to Bank 193,037
Accrued expenses 43,652
Total liabilities 1,903,329
Net Assets for 464,011,919 shares outstanding $ 464,011,919
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER
SHARE:
$464,011,919 / 464,011,919 shares outstanding $1.00
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF OPERATIONS
MONEY MARKET TRUST
YEAR ENDED JULY 31, 1997
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 27,999,635
EXPENSES:
Investment advisory fee $ 2,020,387
Administrative personnel and services fee 381,501
Custodian fees 68,344
Transfer and dividend disbursing agent fees and 39,333
expenses
Directors'/Trustees' fees 19,299
Auditing fees 13,237
Legal fees 8,721
Portfolio accounting fees 104,468
Shareholder services fee 1,262,741
Share registration costs 26,154
Printing and postage 11,603
Insurance premiums 6,419
Taxes 16,302
Miscellaneous 8,136
Total expenses 3,986,645
Waivers --
Waiver of investment advisory fee $ (662,649)
Waiver of shareholder services fee (1,010,193)
Total waivers (1,672,842)
Net expenses 2,313,803
Net investment income $ 25,685,832
</TABLE>
(See Notes which are an integral part of the Financial Statements)
STATEMENT OF CHANGES IN NET ASSETS
MONEY MARKET TRUST
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 25,685,832 $ 25,115,141
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (25,685,832) (25,115,141)
SHARE TRANSACTIONS--
Proceeds from sale of shares 2,424,533,267 2,528,203,824
Net asset value of shares issued to shareholders in payment 4,283,370 4,299,023
of distributions declared
Cost of shares redeemed (2,478,491,926) (2,526,087,334)
Change in net assets resulting from share transactions (49,675,289) 6,415,513
Change in net assets (49,675,289) 6,415,513
NET ASSETS:
Beginning of period 513,687,208 507,271,695
End of period $ 464,011,919 $ 513,687,208
</TABLE>
(See Notes which are an integral part of the Financial Statements)
NOTES TO FINANCIAL STATEMENTS
MONEY MARKET TRUST
JULY 31, 1997
ORGANIZATION
Money Market Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end management
investment company. The investment objective of the Trust is stability
of principal and current income.
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 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,
1997 is as follows:
<TABLE>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Goldman Sachs & Co. 7/28/97 $ 15,000,000
Peoples Security Life Insurance Co. 7/8/97 20,000,000
</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.
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, 1997, capital paid-in aggregated $464,011,919.
Transactions in shares were as follows:
<TABLE>
YEAR ENDED JULY 31,
1997 1996
<S> <C> <C>
Shares sold 2,424,533,267 2,528,203,824
Shares issued to shareholders in payment of 4,283,370 4,299,023
distributions declared
Shares redeemed (2,478,491,926) (2,526,087,334)
Net change resulting from share
transactions (49,675,289) 6,415,513
</TABLE>
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 waive,
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 FSS up to 0.25% of
average daily 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. FSS 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 AUDITOR'S 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, 1997, the related statement of operations for the year then
ended, the statements of changes in net assets for the years ended
July 31, 1997 and 1996, 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, 1997 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, 1997, 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
September 9, 1997
[Graphic]
MONEY MARKET TRUST
[Graphic]
PROSPECTUS
SEPTEMBER 30, 1997
An Open-End, Management Investment Company
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
Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT
AND DIVIDEND
DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401
Federated Securities Corp., Distributors
Cusip 609900105
8083102A (9/97)
[Graphic]
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,
1997. 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, 1997
[Graphic]
Federated Investors
Federated Securities Corp., Distributor
Cusip 609900105
8083102B (9/97)
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 Restricted and
Illiquid Securities 2 Credit Enhancement 2 INVESTMENT LIMITATIONS 2
Selling Short and Buying on Margin 2 Borrowing Money 2 Pledging
Assets 2 Investing in Commodities, Minerals, or Real Estate 2
Underwriting 2 Lending Cash or Securities 2 Acquiring Securities 2
Diversification of Investments 3 Investing in Restricted Securities 3
Investing in New Issuers 3 Investing in Put and Call Options 3
Investing in Foreign Securities 3 Investing in Issuers Whose
Securities are Owned by Officers of the Trust 3 Concentration of
Investments 3 Regulatory Compliance 3 MONEY MARKET TRUST MANAGEMENT 4
Share Ownership 7 Trustee Compensation 8 Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8 Investment Adviser 8 Advisory Fees 9
BROKERAGE TRANSACTIONS 9 OTHER SERVICES 9 Trust Administration 9
Custodian and Portfolio Accountant 9 Transfer Agent 9 Independent
Auditors 9 Shareholder Services 10 DETERMINING NET ASSET VALUE 10
REDEMPTION IN KIND 10 MASSACHUSETTS PARTNERSHIP LAW 10 THE TRUST'S
TAX STATUS 11 PERFORMANCE INFORMATION 11 Yield 11 Effective Yield 11
Total Return 11 Performance Comparisons 11 Economic and Market
Information 12 ABOUT FEDERATED INVESTORS 12 Mutual Fund Market 12
Institutional Clients 12 Bank Marketing 13 Broker/Dealers and Bank
Broker/Dealer Subsidiaries 13
INVESTMENT POLICIES
Unless indicated otherwise, the policies described below may be
changed by the Board of Trustees (the "Trustees") without shareholder
approval. Shareholders will be notified before any material change in
these policies becomes effective.
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:
* the full faith and credit of the U.S. Treasury;
* the issuer's right to borrow from the U.S. Treasury;
* the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
* the credit of the agency or instrumentality issuing the obligations.
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
A nationally recognized statistical rating organization ("NRSRO") 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.
RESTRICTED AND ILLIQUID SECURITIES
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.
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 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 its total assets in
securities of unseasoned issuers, including their predecessors which
have been in operation for less than three years.
INVESTING IN PUT AND CALL OPTIONS
The Trust will not invest in puts, calls, straddles, spreads, and 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 in its portfolio securities
issued by an issuer, any of whose officers, directors or security
holders is an officer, director or Trustee of the Trust or adviser if,
after the purchase of the securities of such issuer by the Trust, one
or more of such officers, directors or Trustees owns beneficially more
than 1/2 of 1% of the shares or securities or both of such issuer, and
such officer, director and trustee owning more than 1/2 of 1% of such
shares or securities, together own beneficially more than 5% of such
shares or 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.
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. Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President of the Company.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly,
Senior Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee, University of Pittsburgh;
Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real
estate ventures in Southwest Florida; formerly, President, Naples Property
Management, Inc. and Northgate Village Development Corporation; Director or
Trustee of the Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC Bank
Corp.; Director, Ryan Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director or
Trustee of the Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director,
University of Pittsburgh Medical Center--Downtown; Member, Board of
Directors, University of Pittsburgh Medical Center; formerly,
Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; Director or Trustee of the Funds.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western
Region; Director or Trustee of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of
Massachusetts; formerly, President, State Street Bank and Trust
Company and State Street Boston Corporation; Director or Trustee of
the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Retired
from the law firm of Miller, Ament, Henny & Kochuba; 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; 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 and U.S.
Space Foundation; President Emeritus, University of Pittsburgh;
Founding Chairman, National Advisory Council for Environmental Policy
and Technology, Federal Emergency Management Advisory Board and Czech
Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
Glen R. Johnson
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 2, 1929
President
Trustee, Federated Investors; President and/or Trustee of some of the
Funds; staff member, Federated Securities Corp.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated
Research Corp. and Federated Global Research Corp.; President, Passport
Research, Ltd.; Trustee, Federated Shareholder Services Company, and
Federated Shareholder Services; Director, Federated Services Company;
President or Executive Vice President of the Funds; Director or Trustee of
some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and
Trustee of the Company.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Executive Vice President
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated
Research, Federated Research Corp., Federated Global Research Corp.
and Passport Research, Ltd.; Executive Vice President and Director,
Federated Securities Corp.; Trustee, Federated Shareholder Services
Company; Trustee or Director of some of the Funds; President,
Executive Vice President and Treasurer of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President, Secretary, and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors;
Trustee, Federated Advisers, Federated Management, and Federated
Research; Director, Federated Research Corp. and Federated Global
Research Corp.; Trustee, Federated Shareholder Services Company;
Director, Federated Services Company; President and Trustee, Federated
Shareholder Services; Director, Federated Securities Corp.; Executive
Vice President and Secretary of the Funds; Treasurer of some of the
Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of
the Funds; Director or Trustee of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in
the Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, "Funds" includes
the following investment companies:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
Blanchard Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D.
Jones & Co. Daily Passport Cash Trust; Federated Adjustable Rate U.S.
Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Equity Funds; Federated Equity Income
Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.;
Federated Government Trust; Federated High Income Bond Fund, Inc.;
Federated High Yield Trust; Federated Income Securities Trust;
Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios;
Federated Investment Trust; Federated Master Trust; Federated
Municipal Opportunities Fund, Inc.; Federated Municipal Securities
Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust;
Federated Total Return Series, Inc.; Federated U.S. Government Bond
Fund; Federated U.S. Government Securities Fund: 1-3 Years; Federated
U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First
Priority Funds; Fixed Income Securities, Inc.; High Yield Cash Trust;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Term Trust, Inc.
- - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash Trust;
Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market
Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO
Monument Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
The Planters Funds; The Virtus Funds; Trust for Financial
Institutions; Trust for Government Cash Reserves; Trust for Short-Term
U.S. Government Securities; Trust for U.S. Treasury Obligations;
Wesmark Funds; and World Investment Series, Inc.
SHARE OWNERSHIP
Officers and Trustees as a group own less than 1% of the Trust.
As of September 7, 1997, 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 65,388,800
shares (13.56%); and Compass Bank, Birmingham, AL, owned approximately
25,580,663 shares (5.31%).
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION
AGGREGATE
NAME, COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
TRUST TRUST*# FROM FUND COMPLEX+
<S> <C> <S>
John F. Donahue, $0 $-0- for the Trust and Chairman and
Trustee 56 other investment companies in the Fund Complex
Thomas G. Bigley $1,452 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John T. Conroy $1,597 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
William J. Copeland $1,597 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
James E. Dowd $1,597 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Lawrence D. Ellis, M.D. $1,452 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Edward L. Flaherty, Jr. $1,597 $119,615 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Peter E. Madden $1,452 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Gregor F. Meyer $1,452 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
John E. Murray, Jr. $1,452 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Wesley W. Posvar $1,452 $108,725 for the Trust and
Trustee 56 other investment companies in the Fund Complex
Marjorie P. Smuts $1,452 $108,525 for the Trust and
Trustee 56 other investment companies in the Fund Complex
</TABLE>
* Information is furnished for the fiscal year ended July 31, 1997.
# The aggregate compensation is provided for the Trust which is comprised of
one portfolio.
+ The information is provided for the last calendar year.
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are
not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence,
or reckless disregard of the duties involved in the conduct of their
office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The Trust's investment adviser is Federated Research. 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, 1997, 1996, and 1995, the adviser earned
$2,020,387, $1,925,061, and $2,213,807, respectively, of which
$662,649, $666,410, and $803,723, respectively, were waived.
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 Administrative Services, Inc. served
as the Trust's Administrator. Both former Administrators are
subsidiaries of Federated Investors. For purposes of this Statement of
Additional Information, Federated Services Company and Federated
Administrative Services may hereinafter collectively be referred to as
the "Administrators." For the fiscal years ended July 31, 1997, 1996,
and 1995, the Administrators earned $381,501, $364,005, and $418,963,
respectively.
CUSTODIAN AND PORTFOLIO ACCOUNTANT
State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Trust. Federated Services
Company, Pittsburgh, Pennsylvania, provides certain accounting and
recordkeeping services with respect to the Trust's portfolio
investments. The fee paid for this service is based upon the level of
the Trust's average net assets for the period plus out-of-pocket
expenses.
TRANSFER AGENT
Federated Services Company, through its registered transfer agent,
Federated Shareholder Services Company, maintains all necessary
shareholder records. For its services, the transfer agent receives a
fee based on the number of shareholder accounts.
INDEPENDENT AUDITORS
The independent auditors for the Trust are Deloitte & Touche LLP,
Pittsburgh, Pennsylvania.
SHAREHOLDER SERVICES
This arrangement permits the payment of fees to Federated Shareholder
Services 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 Trustees expect
that the Trust will benefit by: (1) providing personal services to
shareholders; (2) investing shareholder assets with a minimum of delay
and administrative detail; (3) enhancing shareholder recordkeeping
systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal period ended July 31, 1997, the Trust paid shareholder
service fees in the amount of $1,262,741 of which $1,010,193 were
waived.
DETERMINING NET ASSET VALUE
The Trustees have decided that the best method for determining the
value of portfolio instruments is amortized cost. Under this method,
portfolio instruments are valued at the acquisition cost as adjusted
for amortization of premium or accumulation of discount rather than at
current market value. Accordingly, neither the amount of daily income
nor the net asset value is affected by any unrealized appreciation or
depreciation of the portfolio. In periods of declining interest rates,
the indicated daily yield on shares of the Trust computed by dividing
the annualized daily income on the Trust's portfolio by the net asset
value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market
prices and estimates. In periods of rising interest rates, the
opposite may be true.
The Trust's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions in Rule
2a-7 (the "Rule") promulgated by the Securities and Exchange
Commission under the Investment Company Act of 1940. Under the Rule,
the Trustees must establish procedures reasonably designed to
stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Trust's investment objective. The
procedures include monitoring the relationship between the amortized
cost value per share and the net asset value per share based upon
available indications of market value. The Trustees will decide what,
if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
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, 1997, was
5.23%.
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, 1997, was
5.37%.
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 period ended July 31, 1997 were 5.19%, 4.42% and 5.78%,
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:
* Lipper Analytical Services, Inc., ranks funds in various fund
categories based on total return, which assumes the reinvestment
of all income dividends and capital gains distributions, if any.
* IBC/Donoghue's Money Fund Report publishes annualized yields of
money market funds weekly. Donoghue's Money Market Insight
publication reports monthly and 12-month-to-date investment
results for the same money funds.
* Money, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day
effective yield.
* Salomon 30-Day CD Index compares rate levels of 30-day
certificates of deposit from the top ten prime representative
banks.
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 portfolio managers and their views
and analysis on how such developments could affect the funds. In
addition, advertising and sales literature may quote statistics and
give general information about the mutual fund industry, including the
growth of the industry, from sources such as the Investment Company
Institute.
ABOUT FEDERATED INVESTORS
Federated Investors is dedicated to meeting investor needs which is
reflected in its investment decision making--structured,
straightforward, and consistent. This has resulted in a history of
competitive performance with a range of competitive investment
products that have gained the confidence of thousands of clients and
their customers.
The company's disciplined security selection process is firmly rooted
in sound methodologies backed by fundamental and technical research.
Investment decisions are made and executed by teams of portfolio
managers, analysts, and traders dedicated to specific market sectors.
These traders handle trillions of dollars in annual trading volume.
In the money market sector, Federated Investors gained prominence in
the mutual fund industry in 1974 with the creation of the first
institutional money market fund. Simultaneously, the company pioneered
the use of the amortized cost method of accounting for valuing shares
of money market funds, a principal means used by money managers today
to value money market fund shares. Other innovations include the first
institutional tax-free money market fund. As of December 31, 1996,
Federated Investors managed more than $50.3 billion in assets across
50 money market funds, including 18 government, 11 prime and 21
municipal with assets approximating $28.0 billion, $12.8 billion and
$9.5 billion, respectively.
J. Thomas Madden, Executive Vice President, oversees Federated
Investors' equity and high-yield corporate bond management while
William D. Dawson, Executive Vice President, oversees Federated
Investors' domestic fixed income management. Henry A. Frantzen,
Executive Vice President, oversees the management of Federated
Investors' international and global portfolios.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their
financial goals through mutual funds. These investors, as well as
businesses and institutions, have entrusted over $3.5 trillion to the
more than 6,000 funds available.*
Federated Investors, through its subsidiaries, distributes mutual
funds for a variety of investment applications. Specific markets
include:
INSTITUTIONAL CLIENTS
Federated Investors meets the needs of more than 4,000 institutional
clients nationwide by managing and servicing separate accounts and
mutual funds for a variety of applications, including defined benefit
and defined contribution programs, cash management, and
asset/liability management. Institutional clients include
corporations, pension funds, tax-exempt entities,
foundations/endowments, insurance companies, and investment and
financial advisors. The marketing effort to these institutional
clients is headed by John B. Fisher, President, Institutional Sales
Division.
BANK MARKETING
Other institutional clients include close relationships with more than
1,600 banks and trust organizations. Virtually all of the trust
divisions of the top 100 bank holding companies use Federated funds in
their clients' portfolios. The marketing effort to trust clients is
headed by Timothy C. Pillion, Senior Vice President, Bank Marketing &
Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated funds are available to consumers through major brokerage
firms nationwide--we have over 2,200 broker/dealer and bank
broker/dealer relationships across the country--supported by more
wholesalers than any other mutual fund distributor. Federated's
service to financial professionals and institutions has earned it high
ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement.
The marketing effort to these firms is headed by James F. Getz,
President, Federated Securities Corp.
* Source: Investment Company Institute
