CASH TRUST SERIES, INC.
Prime Cash Series, Treasury Cash Series, Government Cash Series, Municipal
Cash Series
PROSPECTUS
This prospectus offers shares in Prime Cash Series (the "Prime Fund"),
Treasury Cash Series (the "Treasury Fund"), Government Cash Series (the
"Government Fund"), and Municipal Cash Series (the "Municipal Fund"). Each of
these Funds is a separate money market portfolio of Cash Trust Series, Inc.
(the "Company"), an open-end management investment company (a mutual fund).
Except for the Municipal Fund, each Fund seeks current income consistent with
stability of principal and liquidity. The Municipal Fund seeks current income
exempt from federal regular income tax 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. EACH
FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN
BE NO ASSURANCE THAT A FUND WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in any of the Funds. Keep this prospectus for future reference.
Each Fund has also filed a Statement of Additional Information dated
September 30, 1998, with the Securities and Exchange Commission ("SEC"). The
information contained in each Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of a
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 a Fund,
contact your financial institution. The Statement of Additional Information,
material incorporated by reference into this document, and other information
regarding the Funds 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, 1998
TABLE OF CONTENTS
Summary of Fund Expenses 1
Financial Highlights - Prime Cash Series 2
Financial Highlights - Treasury Cash Series 3
Financial Highlights - Government Cash Series 4
Financial Highlights - Municipal Cash Series 5
General Information 6
Year 2000 Statement 6
Investment Information 6
Investment Objective 6
Investment Policies 6
Acceptable Investments 6
More About the Municipal Fund 9
Investment Limitations 10
Fund Information 10
Management of the Funds 10
Distribution of Shares 11
Administration of the Funds 12
Net Asset Value 12
How to Purchase Shares 12
Purchasing Shares Through a Financial Institution 12
Purchasing Shares by Wire 12
Purchasing Shares by Check 12
Special Purchase Features 13
How to Redeem Shares 13
Redeeming Shares Through a Financial Institution 13
Redeeming Shares by Telephone 13
Redeeming Shares by Mail 13
Special Redemption Features 14
Account and Share Information 14
Dividends 14
Capital Gains 14
Account Activity 14
Accounts with Low Balances 14
Voting Rights 14
Tax Information 14
Federal Income Tax 14
State and Local Taxes 15
Performance Information 15
SUMMARY OF FUND EXPENSES
<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
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT MUNICIPAL
CASH SERIES CASH SERIES CASH SERIES CASH SERIES
<S> <C> <C> <C> <C>
Management Fee (after waiver)(1) 0.32% 0.45% 0.41% 0.40%
12b-1 Fee(2) 0.10% 0.10% 0.10% 0.10%
Total Other Expenses 0.58% 0.45% 0.49% 0.51%
Shareholder Services Fee 0.25% 0.25% 0.25% 0.25%
Total Operating Expenses(3) 1.00% 1.00% 1.00% 1.01%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary
waiver at any time at its sole discretion. The maximum management fee is
0.50%.
(2) The maximum 12b-1 fee is 0.35%.
(3) The Total Fund Operating Expenses would have been 1.18%, 1.24%, 1.27%, and
1.11% absent the voluntary waivers of a portion of the management fees for
Prime Cash Series, Treasury Cash Series, Government Cash Series, and
Municipal Cash Series Funds, respectively.
The purpose of this table is to assist an investor in understanding the
various costs and expenses that a shareholder of the Funds will bear, either
directly or indirectly. For more complete descriptions of the various costs
and expenses, see "Fund Information." Wire-transferred redemptions of less
than $5,000 may be subject to additional fees.
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
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT MUNICIPAL
CASH SERIES CASH SERIES CASH SERIES CASH SERIES
<S> <C> <C> <C> <C>
1 Year $ 10 $ 10 $ 10 $ 10
3 Years $ 32 $ 32 $ 32 $ 32
5 Years $ 55 $ 55 $ 55 $ 56
10 Years $122 $122 $122 $124
</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 - PRIME CASH SERIES
(For a share outstanding throughout each period)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated July 10, 1998, on the Fund's
financial statements for the year ended May 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT
OPERATIONS
Net investment
income 0.05 0.05 0.05 0.05 0.02 0.03 0.04 0.07 0.06
LESS DISTRIBUTIONS
Distributions from
net investment
income (0.05) (0.05) (0.05) (0.05) (0.02) (0.03) (0.04) (0.07) (0.06)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 4.83% 4.64% 4.90% 4.60% 2.48% 2.61% 4.37% 6.99% 6.56%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.00% 0.99% 0.99% 0.99% 0.99% 0.99% 0.98% 0.94% 0.73%*
Net investment
income 4.73% 4.55% 4.78% 4.57% 2.45% 2.58% 4.21% 6.50% 7.82%*
Expense waiver/
reimbursement(c) 0.18% 0.20% 0.38% 0.20% 0.18% 0.15% 0.22% 0.44% 0.46%*
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $3,748,034 $2,363,382 $1,539,235 $1,027,083 $791,147 $796,832 $750,016 $562,465 $189,254
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 18,1989 (date of initial
public investment) to May 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MAY 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS - TREASURY CASH SERIES
(For a share outstanding throughout each period)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated July 10, 1998, on the Fund's
financial statements for the year ended May 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT OPERATIONS
Net investment income 0.05 0.04 0.05 0.04 0.02 0.02 0.04 0.07 0.02
LESS DISTRIBUTIONS
Distributions from
net investment income (0.05) (0.04) (0.05) (0.04) (0.02) (0.02) (0.04) (0.07) (0.02)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 4.70% 4.50% 4.83% 4.34% 2.37% 2.47% 4.24% 6.83% 2.42%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.00% 0.99% 0.99% 0.99% 0.99% 0.99% 0.98% 0.88% 0.60%*
Net investment income 4.60% 4.41% 4.70% 4.26% 2.33% 2.46% 4.18% 6.39% 7.75%*
Expense waiver/
reimbursement(c) 0.24% 0.03% 0.29% 0.08% 0.10% 0.04% 0.04% 0.22% 0.44%*
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $821,484 $771,164 $593,730 $424,091 $427,005 $532,334 $638,761 $713,430 $127,800
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 7, 1990 (date of initial
public investment) to May 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MAY 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS - GOVERNMENT CASH SERIES
(For a share outstanding throughout each period)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated July 10, 1998, on the Fund's
financial statements for the year ended May 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM
INVESTMENT OPERATIONS
Net investment income 0.05 0.04 0.05 0.04 0.02 0.03 0.04 0.07 0.06
LESS DISTRIBUTIONS
Distributions from net
investment income (0.05) (0.04) (0.05) (0.04) (0.02) (0.03) (0.04) (0.07) (0.06)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 4.73% 4.54% 4.85% 4.43% 2.45% 2.54% 4.33% 6.80% 6.53%
RATIOS TO AVERAGE
NET ASSETS
Expenses 1.00% 0.99% 0.99% 0.99% 0.99% 0.99% 0.98% 0.94% 0.73%*
Net investment income 4.62% 4.45% 4.75% 4.35% 2.41% 2.53% 4.25% 6.48% 7.74%*
Expense waiver/
reimbursement(c) 0.27% 0.10% 0.30% 0.08% 0.09% 0.06% 0.06% 0.13% 0.32%*
SUPPLEMENTAL DATA
Net assets,
end of period
(000 omitted) $557,184 $530,367 $448,129 $453,096 $401,334 $400,231 $550,675 $631,718 $493,995
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 23, 1989 (date of initial
public investment) to May 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MAY 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
FINANCIAL HIGHLIGHTS - MUNICIPAL CASH SERIES
(For a share outstanding throughout each period)
The following table has been audited by Deloitte & Touche LLP, the Fund's
independent auditors. Their report, dated July 10, 1998, on the Fund's
financial statements for the year ended May 31, 1998, and on the following
table for each of the periods presented, is included in the Annual Report,
which is incorporated by reference. This table should be read in conjunction
with the Fund's financial statements and notes thereto, which may be obtained
from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.03 0.03 0.02 0.03 0.04 0.05 0.04
LESS DISTRIBUTIONS
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.02) (0.03) (0.04) (0.05) (0.04)
NET ASSET VALUE, END OFPERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 2.90% 2.80% 3.04% 2.84% 1.83% 2.11% 3.53% 5.24% 4.68 %
RATIOS TO AVERAGE NET ASSETS
Expenses 1.01% 0.99% 0.99% 0.99% 0.99% 0.99% 0.98% 0.94% 0.73%*
Net investment income 2.86% 2.75% 2.99% 2.76% 1.81% 2.10% 3.42% 5.02% 5.76%*
Expense waiver/reimbursement(c) 0.10% 0.09% 0.33% 0.05% 0.06% 0.03% 0.03% 0.17% 0.45%*
SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $647,813 $515,060 $478,605 $445,164 $574,801 $456,205 $516,814 $403,151 $195,897
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from August 25, 1989 (date of initial
public investment) to May 31, 1990.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
FURTHER INFORMATION ABOUT THE FUND'S PERFORMANCE IS CONTAINED IN THE FUND'S
ANNUAL REPORT, DATED MAY 31, 1998, WHICH CAN BE OBTAINED FREE OF CHARGE.
GENERAL INFORMATION
The Company was established as a Maryland corporation under Articles of
Incorporation dated February 1, 1993. The Articles of Incorporation permit
the Company to offer separate series of shares representing interests in
separate portfolios of securities. Each Fund is designed for customers of
financial institutions such as banks, fiduciaries, custodians of public
funds, investment advisers, and broker/dealers 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 $10,000
is required, except for retirement plans. The Municipal Fund may not be a
suitable investment for retirement plans because it invests in municipal
securities.
Each Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Funds'
service providers (among them, the adviser, distributor, administrator and
transfer agent) must ensure that their computer systems are adjusted to
properly process and calculate date-related information from and after
January 1, 2000. Many software programs and, to a lesser extent, the computer
hardware in use today cannot distinguish the year 2000 from the year 1900.
Such a design flaw could have a negative impact in the handling of securities
trades, pricing and accounting services. The Funds and their service
providers are actively working on necessary changes to computer systems to
deal with the year 2000 issue and believe that systems will be year 2000
compliant when required. Analysis continues regarding the financial impact
of instituting a year 2000 compliant program on the Funds' operations.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
Except for the Municipal Fund, the investment objective of each Fund is
current income consistent with stability of principal and liquidity. The
investment objective of the Municipal Fund is current income exempt from
federal regular income tax consistent with stability of principal. An
investment objective cannot be changed without shareholder approval. While
there is no assurance that a Fund will achieve its investment objective, each
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.
INVESTMENT POLICIES
Each Fund pursues its investment objective by investing in a portfolio of
money market securities maturing in 13 months or less. All securities must
be denominated and payable in U.S. dollars. The average maturity of the
securities in each Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days or less. The Municipal Fund has a fundamental policy that at
least 80% of its annual interest income will be exempt from federal regular
income tax. (Federal regular income tax does not include the federal
individual alternative minimum tax or the federal alternative minimum tax for
corporations.) Unless indicated otherwise, the investment policies may be
changed by the Board of Directors (the "Directors") without shareholder
approval. Shareholders will be notified before any material change in these
policies becomes effective.
ACCEPTABLE INVESTMENTS
The Prime Fund invests in high quality money market instruments that are
either rated in one of the two highest short-term rating categories by one or
more nationally recognized statistical rating organizations 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 Treasury Fund invests only in U.S. Treasury securities which are fully
guaranteed as to principal and interest by the United States. These
investments include repurchase agreements collateralized fully by U.S.
Treasury securities.
The Government Fund invests only in U.S. government securities. These
investments include repurchase agreements collateralized fully by U.S.
government securities. These instruments are either issued or guaranteed by
the U.S. government, its agencies, or instrumentalities. These securities
include, but are not limited to: direct obligations of the U.S. Treasury,
such as U.S. Treasury bills, notes, and bonds; notes, bonds, and discount
notes issued or guaranteed by U.S. government agencies and instrumentalities
supported by the full faith and credit of the United States; notes, bonds,
and discount notes of U.S. government agencies or instrumentalities which
receive or have access to federal funding; and notes, bonds, and discount
notes of other U.S. government instrumentalities supported only by the credit
of instrumentalities. Some obligations issued or guaranteed by agencies or
instrumentalities of the U.S. government are backed by the full faith and
credit of the U.S. Treasury. No assurances can be given that the U.S.
government will provide financial support to other agencies or
instrumentalities since it is not obligated to do so. These instrumentalities
are supported by: the issuer's right to borrow an amount limited to a
specific line of credit from the U.S. Treasury; discretionary authority of
the U.S. government to purchase certain obligations of an agency or
instrumentality; or the credit of the agency or instrumentality.
The Municipal Fund invests primarily in debt obligations issued by or on
behalf of states, territories, and possessions of the United States,
including the District of Columbia, and any political subdivision or
financing authority of any of these, the income from which is, in the opinion
of qualified legal counsel, exempt from federal regular income tax
("Municipal Securities"). Examples of Municipal Securities include, but are
not limited to: tax and revenue anticipation notes issued to finance working
capital needs in anticipation of receiving taxes or other revenues; bond
anticipation notes that are intended to be refinanced through a later
issuance of longer-term bonds; municipal commercial paper and other short-
term notes; variable rate demand notes; municipal bonds (including bonds
having serial maturities and pre-refunded bonds) and leases; and
participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments that have variable
or floating interest rates and provide the Prime Fund and the Municipal Fund
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 Prime Fund and the
Municipal Fund to demand the repurchase of the security on not more than
seven days prior notice. Other notes only permit these Funds to tender the
security at the time of each interest rate adjustment or at other fixed
intervals. See "Demand Features." The Prime Fund and the Municipal Fund treat
variable rate demand notes as maturing on the later of the date of the next
interest rate adjustment or the date on which the Fund may next tender the
security for repurchase.
BANK INSTRUMENTS
The Prime Fund invests in Bank Instruments that are 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 Prime Fund will treat securities credit enhanced with
a bank's letter of credit as Bank Instruments.
ASSET-BACKED SECURITIES
The Prime Fund invests in asset-backed securities that are issued by special
purpose entities whose primary assets consist of a pool of loans or accounts
receivable. These 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 Prime Fund may enter into, or acquire participations in, short-term
borrowing arrangements with corporation, 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 Prime Fund treats any commitments to provide such advances
as a standby commitment to purchase the borrower's notes.
REPURCHASE AGREEMENTS
Certain securities in which the Funds invest 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 Funds 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 a Fund, the Fund could receive less than the repurchase
price on any sale of such securities.
AGENCY MASTER DEMAND NOTES
The Government Fund may enter into master demand notes with various federal
agencies and instrumentalities. Under a master demand note, the Government
Fund has the right to increase or decrease the amount of the note on a daily
basis within specified maximum and minimum amounts. Master demand notes also
normally provide for full or partial repayment upon seven or more days notice
by either the Government Fund or the borrower and bear interest at a variable
rate. The Government Fund relies on master demand notes, in part, to provide
daily liquidity. To the extent that the Government Fund cannot obtain
liquidity through master demand notes, it may be required to maintain a
larger cash position, invest more assets in securities with current
maturities or dispose of assets at a gain or loss to maintain sufficient
liquidity.
CREDIT ENHANCEMENT
Certain of the Prime Fund's and the Municipal Fund'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 Prime
Fund and the Municipal Fund and affect their share prices. The Municipal Fund
may have more than 25% of its total assets invested in securities credit-
enhanced by banks.
DEMAND FEATURES
The Prime Fund and the Municipal Fund 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 Funds. 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 Funds use these arrangements to
provide 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
Each of the Funds may purchase securities on a when-issued or delayed
delivery basis. These transactions are arrangements in which a Fund purchases
securities with payment and delivery scheduled for a future time. The
seller's failure to complete these transactions may cause a Fund 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.
A Fund may dispose of a commitment prior to settlement if the adviser deems
it appropriate to do so. In addition, a Fund 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. A Fund may realize short-term profits or losses upon the sale of
such commitments.
RESTRICTED AND ILLIQUID SECURITIES
The Prime Fund and the Municipal Fund may invest in restricted securities.
Restricted securities are any securities in which the Funds may invest
pursuant to their investment objective and policies but which are subject
to restrictions on resale under federal securities law. Under criteria
established by the Directors, certain restricted securities are determined
to be liquid. To the extent that restricted securities are not determined
to be liquid, the Funds will limit their purchase, together with other
illiquid securities, to 10% of their net assets.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
Each Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient
means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by a Fund in shares of other investment companies
may be subject to such duplicate expenses.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Prime Fund and the Government
Fund may lend their portfolio securities on a short-term or long-term basis,
or both, to broker/dealers, banks, or other institutional borrowers of
securities. The Prime Fund and the Government Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
adviser has determined are creditworthy under guidelines established by the
Directors and will receive collateral at all times equal to at least 100% of
the value of the securities loaned. There is the risk that when lending
portfolio securities, the securities may not be available to a Fund on a
timely basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price. In addition, in the event that a borrower of
securities would file for bankruptcy or become insolvent, disposition of the
securities may be delayed pending court action.
CONCENTRATION OF INVESTMENTS
As a matter of fundamental policy, the Prime Fund will not invest 25% or more
of its total assets in any one industry. However, investing in U.S.
government securities and domestic bank instruments shall not be considered
investments in any one industry.
MORE ABOUT THE MUNICIPAL FUND
PARTICIPATION INTERESTS
The Municipal Fund may purchase interests in Municipal Securities from
financial institutions such as commercial and investment banks, savings
associations, and insurance companies. These interests may take the form of
participations, beneficial interests in a trust, partnership interests or
any other form of indirect ownership that allows the Municipal Fund to treat
the income from the investment as exempt from federal income tax. The
Municipal Fund invests in these participation interests in order to obtain
credit enhancement or demand features that would not be available through
direct ownership of the underlying Municipal Securities.
MUNICIPAL LEASES
Municipal leases are obligations issued by state and local governments or
authorities to finance the acquisition of equipment and facilities. They may
take the form of a lease, an installment purchase contract, a conditional
sales contract, or a participation interest in any of the above. Lease
obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market
conditions call for a temporary defensive posture, the Municipal Fund may
invest in tax-exempt or taxable securities, all of comparable quality to
other securities in which the Municipal Fund invests, such as: obligations
issued by or on behalf of municipal or corporate issuers; obligations issued
or guaranteed by the U.S. government, its agencies, or instrumentalities;
instruments issued by a U.S. branch of a domestic bank or other deposit
institutions having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment; and repurchase agreements
(arrangements in which the organization selling the Municipal Fund a
temporary investment agrees at the time of sale to repurchase it at a
mutually agreed upon time and price).
Although the Municipal Fund is permitted to make taxable, temporary
investments, there is no current intention to do so. However, the interest
from certain Municipal Securities is subject to the federal alternative
minimum tax.
MUNICIPAL SECURITIES
Municipal Securities are generally issued to finance public works, such as
airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. They are also issued
to repay outstanding obligations, to raise funds for general operating
expenses, and to make loans to other public institutions and facilities.
Municipal Securities include industrial development bonds issued by or on
behalf of public authorities to provide financing aid to acquire sites or
construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment
of principal and interest. Interest on and principal of revenue bonds,
however, are payable only from the revenue generated by the facility financed
by the bond or other specified sources of revenue. Revenue bonds do not
represent a pledge of credit or create any debt of or charge against the
general revenues of a municipality or public authority. Industrial
development bonds are typically classified as revenue bonds.
Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the
municipal bond market; the size of the particular offering; the maturity of
the obligations; and the rating of the issue. The ability of the Municipal
Fund to achieve its investment objective also depends on the continuing
ability of the issuers of Municipal Securities and participation interests,
or the credit enhancers of either, to meet their obligations for the payment
of interest and principal when due. In addition, from time to time, the
supply of Municipal Securities acceptable for purchase by the Municipal Fund
could become limited.
The Municipal Fund may invest in Municipal Securities which are repayable out
of revenue streams generated from economically related projects or
facilities and/or whose issuers are located in the same state. Sizable
investments in these Municipal Securities could involve an increased risk to
the Municipal Fund should any of these related projects or facilities
experience financial difficulties.
Obligations of issuers of Municipal Securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies
of creditors. In addition, the obligations of such issuers may become subject
to laws enacted in the future by Congress, state legislators, or referenda
extending the time for payment of principal and/or interest, or imposing
other constraints upon enforcement of such obligations or upon the ability of
states or municipalities to levy taxes. There is also the possibility that,
as a result of litigation or other conditions, the power or ability of any
issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected. The Municipal Fund's concentration in
Municipal Securities may entail a greater level of risk than other types of
money market funds.
INVESTMENT LIMITATIONS
Each Fund will not borrow money directly or through reverse repurchase
agreements (arrangements in which a Fund sells a money market instrument for
a percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, each Fund may
borrow up to one-third of the value of its total assets and pledge up to 10%
of its total assets to secure such borrowings.
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may be changed by the Directors
without shareholder approval. Shareholders will be notified before any
material change in this limitation becomes effective.
The Treasury Fund and the Government Fund will not invest more than 10% of
their net assets in illiquid securities, including repurchase agreements
providing for settlement in more than seven days after notice.
FUND INFORMATION
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS
The Funds are managed by a Board of Directors. The Directors are responsible
for managing each Fund's business affairs and for exercising all the
Company's powers except those reserved for the shareholders. An Executive
Committee of the Board of Directors handles the Board's responsibilities
between meetings of the Board.
INVESTMENT ADVISER
Investment decisions for each Fund are made by Federated Advisers, the Funds'
investment adviser, subject to direction by the Directors. The adviser
continually conducts investment research and supervision for each Fund and is
responsible for the purchase and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to 0.50% of each
Fund's average daily net assets. The adviser may voluntarily choose to waive
a portion of its fee or reimburse other expenses of a Fund, but reserves the
right to terminate such waiver or reimbursement at any time at its sole
discretion.
ADVISER'S BACKGROUND
Federated Advisers, 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, Inc. All of the Class A (voting)
shares of Federated Investors, Inc. are owned by a trust, the trustees of
which are John F. Donahue, Chairman and Director of Federated Investors,
Inc., Mr. Donahue's wife, and Mr. Donahue's son, J. Christopher Donahue,
who is President and Director of Federated Investors, Inc.
Federated Advisers and other subsidiaries of Federated Investors, Inc. 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 $120 billion invested across more
than 300 funds under management and/or administration by its subsidiaries, as
of December 31, 1997, Federated Investors, Inc. 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 approximately 4,000
financial institutions nationwide.
Both the Company and the adviser have adopted strict codes of ethics
governing the conduct of all employees who manage each Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to a
Fund'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 a Fund; 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 Directors, and could result in severe penalties.
DISTRIBUTION OF SHARES
Federated Securities Corp. is the principal distributor for shares of each
Fund. 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, Inc.
DISTRIBUTION PLAN AND SHAREHOLDER SERVICES
Under a distribution plan adopted in accordance with Rule 12b-1 under the
Investment Company Act of 1940 (the "Plan"), the distributor may select
financial institutions such as banks, fiduciaries, custodians for public
funds, investment advisers and broker/dealers to provide distribution and/or
administrative services as agents for their clients or customers. These
services may include, but are not limited to the following functions:
providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer 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 regarding
the Funds; assisting clients in changing dividend options, account
designations, and addresses; and providing such other services as the Funds
reasonably requests.
The distributor will pay financial institutions a fee based upon shares
subject to the Plan and owned by their clients or customers. The schedules of
such fees and the basis upon such fees will be paid will be determined from
time to time by the Directors of the Funds provided that for any period the
total amount of these fees shall not exceed an annual rate of 0.35% of the
average net asset value of shares subject to the Plan held during the period
by clients or customers of financial institutions. The current annual rate of
such fees is 0.35%. Any fees paid by the distributor under the Plan will be
reimbursed from the assets of a Fund.
In addition, each Fund has entered into a Shareholder Services Agreement with
Federated Shareholder Services, a subsidiary of Federated Investors, Inc.,
under which a Fund may make payments up to 0.25% of the average daily net
asset value of its shares to obtain certain personal services for
shareholders and to maintain shareholder accounts. 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 each Fund and Federated Shareholder Services.
SUPPLEMENTAL PAYMENTS TO FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan and
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 Funds. 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 Funds' investment adviser or its affiliates.
ADMINISTRATION OF THE FUNDS
ADMINISTRATIVE SERVICES
Federated Services Company, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services (including certain legal and
financial reporting services)
necessary to operate the Funds at an annual rate which relates to the average
aggregate daily net assets of all funds advised by affiliates of Federated
Investors, Inc. specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
FEE DAILY NET ASSETS
<C> <S>
0.150% on the first $250million
0.125% on the next $250million
0.100% on the next $250million
0.075% on assets in excess of $750million
</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
Each Fund 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 Funds cannot guarantee that their net asset values will always remain at
$1.00 per share.
The net asset value is determined at 12:00 p.m., 3:00 p.m. (Eastern time),
and as of the close of trading (normally 4:00 p.m., Eastern time) on the
New York Stock Exchange, Monday through Friday, except on New Year's Day,
Martin Luther King, Jr. 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 which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Funds, with a minimum initial
investment of $10,000 or more or additional investments of as little as $500.
Financial institutions may impose different minimum investment requirements
on their customers.
In connection with any sale, Federated Securities Corp. may from time to time
offer certain items of nominal value to any shareholder or investor. The
Funds reserve the right to reject any purchase request. An account must be
established at a financial institution or by completing, signing, and
returning the new account form available from the Funds before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a
sales agreement with the distributor. Orders are considered received when a
Fund receives payment by wire or converts payment by check from the financial
institution into federal funds. It is the financial institution's
responsibility to transmit orders promptly. Financial institutions may
charge additional fees for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by Federal Reserve wire by calling the appropriate
Fund 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) in order to begin earning dividends that
same 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: Fund Name; Fund Number (this number can
be found on the account statement or by contacting the Funds); Group Number
or Order Number; Nominee or Institution Name; and ABA Number 011000028.
Shares cannot be purchased by wire on holidays when wire transfers are
restricted. Questions on wire purchases should be directed to your
shareholder services representative at the telephone number listed on your
account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder
Services Company, P.O. Box 8600, Boston, MA 02266-8600. The check should
be made payable to the name of the appropriate Fund. Please include an
account number on the check. 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.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member
and invested in Fund shares. Shareholders should contact their financial
institution or the Funds to participate in this program.
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 Funds compute their net asset value.
Redemption requests must be received in proper form and can be made as
described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial
institution. Shares will be redeemed at the net asset value next determined
after Federated Shareholder Services Company receives the redemption
request. According to the shareholder's instructions, redemption proceeds
can be sent to the financial institution or to the shareholder by check or by
wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution
for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Funds provided the Fund
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) for the Prime Fund, the Treasury Fund, and the
Government Fund and 12:00 p.m. (Eastern time) for the Municipal Fund 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. Under limited circumstances, arrangements may be made with the
distributor for same-day payment of proceeds, without that day's dividend,
for redemption requests received before 2:00 p.m. (Eastern time). Proceeds
from redeemed shares purchased by check or through ACH will not be wired
until that method of payment has cleared. 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 Funds, they 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 Funds 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 Fund name; the account name as
registered with the Fund; 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 Funds 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 Funds do not accept signatures guaranteed by a
notary public.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders
to redeem their Fund shares. Shareholder accounts will continue to receive
the daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, Warsaw, the bank responsible for administering the
check writing program, for payment. However, checks should never be made
payable or sent to UMB Bank, Warsaw or a Fund to redeem shares, and a check
may not be written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged to
the account for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, other than
retirement accounts subject to required minimum distributions, a systematic
withdrawal program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank,
savings bank, or credit union that is an ACH member. Shareholders may apply
for participation in this program through their financial institutions or the
Funds.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Funds unless cash
payments are requested by writing to the Funds. 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 Funds do 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 Funds will distribute in cash or additional shares any
realized net capital gains at least once every 12 months.
ACCOUNT ACTIVITY
Shareholders will receive periodic statements reporting all account
activity, including dividends paid. The Funds will not issue share
certificates.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Funds may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $10,000 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 Company owned by a shareholder gives that shareholder one
vote in Director elections and other matters submitted to shareholders for
vote. All shares of each portfolio in the Company have equal voting rights,
except that in matters affecting only a particular portfolio, only
shareholders of that portfolio are entitled to vote. The Company is not
required to hold annual shareholder meetings. Shareholder approval will be
sought only for certain changes in the Company's or a Fund's operation and
for election of Directors under certain circumstances.
Directors may be removed by the Directors or by shareholders at a special
meeting. A special meeting shall be called by the Directors upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Company.
As of September 4, 1998, McDonald & Co. Securities, Inc., Cincinnati, Ohio,
owned 30.43% of the voting securities of the Municipal Fund, and, therefore,
may, for certain purposes, be deemed to control the Municipal Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Funds will pay no federal income tax because they expect to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Company's other portfolios will not be combined for tax purposes with those
realized by any other Fund.
Shareholders of the Municipal Fund are not required to pay the federal
regular income tax on any dividends received from the Municipal Fund that
represent net interest on tax-exempt municipal bonds. However, under the Tax
Reform Act of 1986, dividends representing net interest earned on certain
"private activity" bonds issued after August 7, 1986, may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations. The Municipal Fund may purchase,
within the limits of its investment policies, all types of municipal bonds,
including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items
not included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
Dividends of the Municipal Fund representing net interest income earned on
some temporary investments and any realized net short-term gains are taxed as
ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
STATE AND LOCAL TAXES
Because interest received by the Municipal Fund may not be exempt from all
state and local income taxes, shareholders may be required to pay state and
local taxes on dividends received from the Municipal Fund. 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 Funds advertise their yield, effective yield, tax-
equivalent 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. The tax-equivalent yield is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
would have to be earned to equal the Municipal Fund's tax-exempt yield,
assuming a specific tax rate.
Total return represents the change, over a specified period of time, in the
value of an investment in a Fund 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 Funds may refer to ratings,
rankings, and other information in certain financial publications and/or
compare a Fund's performance to certain indices.
[Graphic]
CASH TRUST SERIES, INC.
Prime Cash Series,
Treasury Cash Series,
Government Cash Series,
Municipal Cash Series
PROSPECTUS
SEPTEMBER 30, 1998
Portfolios of Cash Trust Series, Inc., an
Open-End Management Investment Company
CASH TRUST SERIES, INC.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
1001 Liberty Avenue
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
[Graphic]
Federated Securities Corp., Distributor
1-800-341-7400
www.federatedinvestors.com
Cusip 147551105
Cusip 147551402
Cusip 147551204
Cusip 147551303
G00861-01 (9/98)
[Graphic]
