ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Government Cash
Series, a portfolio of Cash Trust Series, Inc., which covers the 12-month period
from June 1, 1998 through May 31, 1999. The report contains a commentary by the
fund's portfolio manager, followed by a complete listing of the fund's
investments on the last day of the reporting period and its financial
statements.
Government Cash Series is a conservative way to help your ready cash pursue
daily income while offering you the additional advantages of daily liquidity and
stability of principal. 1 The fund invests in some of the safest investments
available-short-term U.S. government obligations and repurchase agreements
backed by these obligations.
Dividends paid to shareholders during the reporting period totaled $0.04 per
share. On May 31, 1999, the fund's total net assets reached $649 million.
As always, we thank you for keeping your cash working through Government Cash
Series. Please contact your investment representative if you have any questions.
We look forward to keeping you up to date on your investment.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
1 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Investment Review
Government Cash Series is permitted to invest in U.S. Treasury and government
agency obligations and in repurchase agreements which have these securities as
collateral. During the reporting period, the fund continued to invest in issues
of the Federal National Mortgage Association, Student Loan Marketing
Association, Federal Farm Credit Bank System, Federal Home Loan Bank System, and
Federal Home Loan Mortgage Corp., and maintained a small Treasury position for
liquidity purposes.
The reporting period was characterized by dramatic shifts in market sentiment
and expectations regarding the path of monetary policy. Early in the reporting
period, economic fundamentals drove movements in short-term interest rates. With
economic growth strong and inflation benign, market participants were convinced
that the Federal Reserve Board (the "Fed") would remain on the sidelines, in
spite of the tightening bias that it had adopted at the March 1998 Federal Open
Market Committee meeting.
By the third quarter of 1998, however, uncertainty in the world economies
introduced vulnerability into the domestic equity market, and led to a
substantial flight-to-quality to U.S. Treasury securities across the yield
curve. Economic trouble spread from Asia to Russia and Latin America. What had
been perceived to have been a fairly modest drag on the U.S. economy as a result
of the remote Asian crisis became an overpowering influence on the market and
expectations regarding future U.S. growth. By August, the Fed had abandoned its
tightening bias, and by late September had taken what was to be the first of
three 25 basis point monetary policy easings in an attempt to calm the financial
markets and relieve the credit and liquidity constraints that were evident.
While this first move had little effect on lessening investors fears, the
subsequent steps-an intermeeting move in mid-October and another in
mid-November-that brought the federal funds target rate down to its current
4.75% level had the desired result.
In the midst of this turmoil, however, strong consumer demand continued to
stimulate the economy. After posting a 6.00% pace of growth in the fourth
quarter of 1998, the economy entered 1999 with considerable strength. Although
growth in the first quarter slowed modestly to around 4.00%, this pace still was
well above what has traditionally been viewed as being the non-inflationary
potential. Nonetheless, signs of inflation remained remarkably absent. By the
end of the reporting period, however, lingering concern over the health of the
global economies had been replaced by apprehension that the Fed might be forced
to tighten monetary policy in order to ward off future inflationary pressures.
Movements in short-term interest rates reflected the shifting sentiment over the
annual reporting period. The effect on very short-term Treasury bills
("T-bills") was dramatic. The yield on the three-month T-bill traded between
5.00% and 5.20% from June 1998 to mid-August. It then plummeted to a low of
3.60% at the height of the liquidity crisis in mid-October, as investors seeking
a safe haven flooded the U.S. Treasury market. Although the flight-to-quality
was not as pronounced in the short-term agency markets, yields on these
securities came under pressure as well. One-year agency securities began the
reporting period at 5.60%, and then fell to 4.40% by mid-October. As the market
unrest subsided, the yields on these securities rebounded to over 5.00% by late
February, and trended gradually upward to close the period near 5.30%.
In the first half of the reporting period, we targeted the fund's average
maturity within a 35 to 45 day average maturity target range, moving within that
range according to relative value opportunities. In the first quarter of 1999,
as the Fed's easing steps took hold and the market turbulence subsided, we moved
the fund's average maturity target range to a 40 to 50 day range. In late
February, as the robust pace of growth of the economy ignited fears of a
near-term tightening in monetary policy by the Fed, we extended the average
maturity of the portfolio to the upper end of that target range. Since that
time, the fund's average maturity has drifted lower as legitimate evidence has
mounted that the Fed may indeed tighten monetary policy at the end of June in a
preemptive move against inflationary pressures.
Portfolio of Investments
MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM OBLIGATIONS-53.6%
$ 5,000,000 1 Federal Home Loan Bank
System Discount Notes,
4.770%, 6/25/1999 $ 4,984,100
56,500,000 2 Federal Home Loan Bank
System Floating Rate
Notes, 4.775% - 5.150%,
6/1/1999 - 8/12/1999 56,486,940
31,400,000 Federal Home Loan Bank System Notes, 4.790% - 5.540%,
7/13/1999 -
4/5/2000 31,386,928
78,000,000 1 Federal Home Loan Mortgage
Corp. Discount Notes,
4.740% - 4.810%,
6/10/1999 - 8/24/1999 77,589,209
37,500,000 2 Federal Home Loan Mortgage
Corp. Floating Rate Notes,
4.700% - 4.800%, 6/17/1999
- 8/17/1999 37,486,957
5,000,000 Federal Home Loan Mortgage
Corp. Notes, 5.544%,
8/13/1999 4,999,460
63,500,000 1 Federal National Mortgage
Association Discount
Notes, 4.400% - 5.160%,
6/10/1999 - 1/24/2000 62,970,368
26,000,000 2 Federal National Mortgage
Association Floating Rate
Notes, 4.715% - 5.205%,
6/15/1999 - 8/10/1999 25,986,644
22,900,000 Federal National Mortgage
Association Notes, 4.780%
- 5.540%,
7/16/1999 - 5/5/2000 22,886,991
23,000,000 2 Student Loan Marketing
Association Floating Rate
Notes, 5.271% - 5.450%,
6/8/1999 - 6/9/1999 22,993,594
TOTAL SHORT-TERM
OBLIGATIONS 347,771,191
REPURCHASE AGREEMENTS-
46.2% 3
30,000,000 ABN AMRO, Inc., 4.910%,
dated 5/28/1999, due
6/1/1999 30,000,000
5,000,000 4 Credit Suisse First
Boston, Inc., 4.780%,
dated 4/20/1999, due
7/19/1999 5,000,000
16,000,000 4 Credit Suisse First
Boston, Inc., 4.780%,
dated 4/28/1999, due
7/27/1999 16,000,000
4,100,000 Deutsche Bank Government
Securities, Inc., 4.820%,
dated 5/28/1999, due
6/1/1999 4,100,000
20,000,000 4 J.P. Morgan & Co., Inc.,
4.830%, dated 5/25/1999,
due 7/26/1999 20,000,000
12,000,000 4 Lehman Brothers, Inc.,
4.790%, dated 4/12/1999,
due 7/12/1999 12,000,000
15,000,000 4 Morgan Stanley Group,
Inc., 4.810%, dated
5/10/1999, due 8/9/1999 15,000,000
30,000,000 Nationsbanc Montgomery
Securities, Inc., 4.900%,
dated 5/28/1999, due
6/1/1999 30,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-
continued 3
$ 8,000,000 4 Nesbitt Burns, Inc.,
4.790%, dated 4/14/1999,
due 7/13/1999 $ 8,000,000
100,000,000 PaineWebber Group, Inc.,
4.900%, dated 5/28/1999,
due 6/1/1999 100,000,000
30,000,000 Paribas Corp., 4.900%,
dated 5/28/1999, due
6/1/1999 30,000,000
30,000,000 Prudential Securities,
Inc., 4.920%, dated
5/28/1999, due 6/1/1999 30,000,000
TOTAL REPURCHASE
AGREEMENTS 300,100,000
TOTAL INVESTMENTS (AT
AMORTIZED COST) 5 $ 647,871,191
</TABLE>
1 The issue shows the rate of discount at time of purchase.
2 Denotes variable rate securities which show current rate and next demand date.
3 The repurchase agreements are fully collateralized by U.S. Treasury and/or
government 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.
4 Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days.
5 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($649,080,502) at May 31, 1999.
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase
agreements $ 300,100,000
Investments in securities 347,771,191
Total investments in
securities, at amortized
cost and value $ 647,871,191
Cash 49,259
Income receivable 1,882,300
Receivable for shares sold 2,313,373
TOTAL ASSETS 652,116,123
LIABILITIES:
Payable for shares
redeemed 2,085,111
Income distribution
payable 687,382
Accrued expenses 263,128
TOTAL LIABILITIES 3,035,621
Net assets for 649,080,502
shares outstanding $ 649,080,502
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$649,080,502 / 649,080,502
shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 32,083,913
EXPENSES:
Investment advisory fee $ 3,072,343
Administrative personnel
and services fee 463,309
Custodian fees 47,504
Transfer and dividend
disbursing agent fees and
expenses 638,585
Directors'/Trustees' fees 7,358
Auditing fees 13,257
Legal fees 4,218
Portfolio accounting fees 98,649
Distribution services fee 614,468
Shareholder services fee 1,536,172
Share registration costs 37,185
Printing and postage 323,163
Insurance premiums 3,006
Taxes 52,850
Miscellaneous 15,410
TOTAL EXPENSES 6,927,477
WAIVER:
Waiver of investment
advisory fee (755,754)
Net expenses 6,171,723
Net investment income $ 25,912,190
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 25,912,190 $ 26,063,493
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (25,912,190) (26,063,493)
SHARE TRANSACTIONS:
Proceeds from sale of shares 2,533,228,808 2,571,697,688
Net asset value of shares
issued to shareholders in
payment of
distributions declared 22,385,677 22,794,145
Cost of shares redeemed (2,463,717,526) (2,567,675,348)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 91,896,959 26,816,485
Change in net assets 91,896,959 26,816,485
NET ASSETS:
Beginning of period 557,183,543 530,367,058
End of period $ 649,080,502 $ 557,183,543
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.05 0.04 0.05 0.04
LESS DISTRIBUTIONS:
Distributions from net investment income (0.04) (0.05) (0.04) (0.05) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 4.30% 4.73% 4.54% 4.85% 4.43%
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 1.12% 1.09% 1.09% 1.29% 1.07%
Net investment income 2 4.10% 4.54% 4.35% 4.45% 4.27%
Expenses (after waivers) 1.00% 1.00% 0.99% 0.99% 0.99%
Net investment income (after waivers) 4.22% 4.62% 4.45% 4.75% 4.35%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $649,081 $557,184 $530,367 $448,129 $453,096
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
YEAR ENDED MAY 31, 1999
ORGANIZATION
Cash Trust Series, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended, (the "Act") as an open-end, management
investment company. The Corporation consists of four portfolios. The financial
statements included herein are only those of Government Cash Series (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held. The investment
objective of the Fund is current income consistent with stability of principal
and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Fund 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 Fund 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 Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund 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 Fund'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 Fund may engage in when-issued or delayed delivery transactions. The Fund
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.
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.
CAPITAL STOCK
At May 31, 1999, there were 12,500,000,000 shares ($0.001 par value per share)
authorized. At May 31, 1999, capital paid in aggregated $649,080,502.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
Shares sold 2,533,228,808 2,571,697,688
Shares issued to
shareholders in payment of
distributions declared 22,385,677 22,794,145
Shares redeemed (2,463,717,526) (2,567,675,348)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 91,896,959 26,816,485
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund 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, Inc. 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.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's shares.
The Plan provides that the Fund may incur distribution expenses up to 0.35% of
the average daily net assets of the Fund shares, annually, to reimburse FSC.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. 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 Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS OF
CASH TRUST SERIES, INC. AND SHAREHOLDERS OF
GOVERNMENT CASH SERIES:
We have audited the accompanying statement of assets and liabilities of
Government Cash Series (a portfolio of Cash Trust Series, Inc.), including the
portfolio of investments, as of May 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended May 31, 1999 and 1998, and the financial highlights for the
years presented. These financial statements and financial highlights are the
responsibility of the Fund'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 May
31, 1999, 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, the financial statements and financial highlights referred to
above, present fairly, in all material respects, the financial position of
Government Cash Series as of May 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for the years ended May 31, 1999
and 1998, and the financial highlights for the years presented, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 12, 1999
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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 mutual funds involves investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
[Graphic]
Federated
World-Class Investment Manager
ANNUAL REPORT
Government Cash Series
ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1999
[Graphic]
Federated
Government Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 147551204
0062902 (7/99)
[Graphic]
ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Municipal Cash
Series, a portfolio of Cash Trust Series, Inc., which covers the 12- month
period from June 1, 1998 through May 31, 1999. The report contains a commentary
by the portfolio manager, followed by a complete listing of the fund's holdings
and its financial statements.
Designed for tax-sensitive investors, Municipal Cash Series helps you pursue
daily tax-free income 1 on your ready cash while offering you the additional
advantages of daily liquidity and stability of principal.2 At the end of the
reporting period, the fund was invested in high-quality, short-term securities
issued by municipalities across the United States.
Tax-free dividends paid to shareholders during the reporting period totaled
$0.03 per share. On May 31, 1999, the fund's net assets totaled $437.4 million.
As always, we thank you for using Municipal Cash Series as a convenient way to
pursue daily tax-free income. Please contact your investment representative if
you have any questions. We look forward to keeping you up to date on your
investment.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
1 Income may be subject to the federal alternative minimum tax and state and
local taxes.
2 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Investment Review
An interview with the fund's portfolio manager,
Mary Jo Ochson, CFA, Senior Vice President,
Federated Investment Management Company
WHAT ARE YOUR COMMENTS ON THE ECONOMY AND THE INTEREST RATE ENVIRONMENT DURING
THE REPORTING PERIOD?
The economy remained robust over the reporting period. At the same time, overall
inflationary pressure remained absent in spite of impressive performance from
the economy and historically low unemployment. Throughout the reporting period,
the Federal Reserve Board (the "Fed") focused on the tight labor market and
potential for inflation. The Fed adopted a neutral bias in monetary policy at
its November 1998 meeting and maintained the policy until recently. The Fed
changed to a tightening bias at its May 1999 meeting, citing the strong U.S.
economy in conjunction with record employment levels, the improvement in foreign
economic prospects, and rebounding U.S. financial markets.
In addition to economic fundamentals, short-term municipal securities were
strongly influenced by technical factors over the reporting period, notably
calendar year end and income tax payment season. Variable rate demand notes
("VRDNs") started the reporting period in the 3.50% range. Rates gradually moved
higher in December to the 4.00% level as seasonal supply and demand imbalances
occurred. Yields declined in January, due to coupon reinvestment and easing of
year end selling pressures. Yields averaged slightly over 2.80% during February
and March before rising to the 3.50% range in April due to traditional tax
season selling pressures. Over the reporting period, VRDN yields averaged
roughly 65% of taxable rates, making them attractive for investors in the
highest federal tax brackets.
The overall tone of the short-term municipal market was positive. Municipalities
across the country benefited from a strong economy. This fact, coupled with
lower borrowing costs from low long-term rates, reduced short-term issuance. In
fact, annual municipal note issuance was at its lowest level in the last decade.
Lack of supply and heavy demand kept short-term municipal securities, relative
to their taxable counterparts, very expensive.
WHAT WERE YOUR STRATEGIES FOR FUND DURING THE REPORTING PERIOD?
The fund's average maturity at the beginning of the reporting period was
approximately 40 days. Over the reporting period, the fund remained in a 40- to
45-day average maturity range, a neutral stance, and moved within that range
according to relative value opportunities. We continued to emphasize a barbelled
structure for the portfolio, combining a significant position in 7-day VRDNs
with purchases of longer-term securities with maturities between 6 and 12
months. Once an average maturity range was targeted, the portfolio attempted to
maximize performance through ongoing relative value analysis. Relative value
analysis includes the comparison of the richness or cheapness of municipal
securities to one another as well as municipal securities to taxable
instruments, such as treasury securities. This portfolio structure continued to
pursue a competitive yield over time.
AS WE APPROACH MID YEAR, WHAT IS YOUR OUTLOOK GOING FORWARD?
The Fed, certain to be troubled by persistent above-trend growth in an economy
where wage inflation is a primary concern, will likely maintain a tightening
bias. Additionally, it is positioned for the next move to be a preemptive
tightening in late June. In the near term, the short-term municipal market will
reflect this fundamental factor as well as the typical technical factors. These
supply and demand imbalances could very well present attractive investment
opportunities for the fund. We will continue to watch, with great interest,
market developments in order to best serve our municipal clients.
Portfolio of Investments
MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.0% 1
ALABAMA-3.4%
$ 1,865,000 Alabama State IDA, Revenue
Bonds Weekly VRDNs
(Southern Bag Corporation,
Ltd.)/
(SouthTrust Bank of
Alabama, Birmingham LOC) $ 1,865,000
5,410,000 Birmingham, AL IDA, IDRBs
(Series 1999) Weekly VRDNs
(Glasforms, Inc.)/
(Comerica Bank, N.A.,
California LOC) 5,410,000
220,000 Hoover, AL IDB Weekly VRDNs
(Bud's Best Cookies,
Inc.)/(SouthTrust Bank of
Alabama, Birmingham LOC) 220,000
370,000 Muscle Shoals, AL, IDB
Weekly VRDNs (Whitesell
Manufacturing)/(SouthTrust
Bank of Alabama,
Birmingham LOC) 370,000
395,000 Muscle Shoals, AL, IDB
Weekly VRDNs (Whitesell
Manufacturing)/(SouthTrust
Bank of Alabama,
Birmingham LOC) 395,000
3,000,000 Perry County, AL IDB,
Revenue Bonds (Series
1998) Weekly VRDNs
(Alabama Catfish Feedmill,
L.L.C.)/(Regions Bank,
Alabama LOC) 3,000,000
1,000,000 Prattville, AL IDB, IDR
Bonds Weekly VRDNs
(Kuhnash Properties/Arkay
Plastics Project)/(PNC
Bank, N.A. LOC) 1,000,000
2,500,000 Shelby County, AL EDA
Weekly VRDNs (Saginaw Pipe
of Illinois,
Inc.)/(Regions Bank,
Alabama LOC) 2,500,000
TOTAL 14,760,000
ARIZONA-3.7%
3,500,000 Arizona Educational Loan
Marketing Corp., (Senior
Series), 5.75% Bonds,
9/1/1999 3,521,520
150,000 Eloy, AZ IDA, (Series 1996)
Weekly VRDNs (The Marley
Cooling Tower Co.)/(First
Union National Bank,
Charlotte, NC LOC) 150,000
1,300,000 Flagstaff, AZ, (Series
1999) Weekly VRDNs (Joy
Cone Co.)/(Mellon Bank
N.A., Pittsburgh LOC) 1,300,000
800,000 Maricopa County, AZ
Pollution Control Corp.,
(Series 1984) Weekly VRDNs
(El Paso Electric
Co.)/(Barclays Bank PLC,
London LOC) 800,000
3,160,000 Maricopa County, AZ, IDA,
(Series 1999) Weekly VRDNs
(Redman Homes, Inc.)/
(PNC Bank, N.A. LOC) 3,160,000
1,000,000 Maricopa County, AZ, IDA,
3.05% CP (Citizens
Utilities Co.), Mandatory
Tender 6/16/1999 1,000,000
870,000 Mesa, AZ Municipal
Development Corp., (Series
1985), 3.20% CP
(Westdeutsche Landesbank
Girozentrale LOC),
Mandatory Tender 8/11/1999 870,000
1,600,000 Phoenix, AZ IDA, (Series
1997) Weekly VRDNs
(Interface Data Systems,
Inc.)/
(Bank One, Arizona N.A.
LOC) 1,600,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
ARIZONA-CONTINUED
$ 1,000,000 Phoenix, AZ IDA, (Series
1998) Weekly VRDNs (ABPAC,
Inc.)/(Bank One,
Arizona N.A. LOC) $ 1,000,000
300,000 Phoenix, AZ IDA, (Series
1998) Weekly VRDNs (Standard Printing Company, Inc.)/ (Bank
One, Arizona N.A.
LOC) 300,000
300,000 Pima County, AZ IDA Weekly
VRDNs (Tucson Electric
Power Co.)/
(Toronto-Dominion Bank
LOC) 300,000
250,000 Tolleson, AZ Municipal
Finance Corp., Revenue
Refunding Bonds (Series of
1998) Weekly VRDNs
(Citizens Utilities Co.) 250,000
1,800,000 Yavapai, AZ IDA, (Series
1997B) Weekly VRDNs
(Yavapai Regional Medical
Center)/
(FSA INS)/(Credit Local de
France LIQ) 1,800,000
TOTAL 16,051,520
ARKANSAS-3.0%
8,000,000 Crossett, AR, (Series
1997) Weekly VRDNs (Bemis
Co., Inc.) 8,000,000
4,300,000 Hope, AR, Solid Waste
Disposal Revenue Bonds
(Series 1994), 3.70% CP
(Temple-Inland Forest
Products Corp.)/(Temple-
Inland, Inc. GTD),
Mandatory Tender 6/8/1999 4,300,000
1,000,000 Sheridan, AR IDA, (Series
B) Weekly VRDNs (H.H.
Robertson Co.)/
(PNC Bank, N.A. LOC) 1,000,000
TOTAL 13,300,000
COLORADO-0.9%
3,750,000 Adams County, CO IDB,
(Series 1993) Weekly VRDNs
(Bace Manufacturing,
Inc.)/
(Citibank N.A., New York
LOC) 3,750,000
DISTRICT OF COLUMBIA-2.3%
10,000,000 District of Columbia HFA,
(1998 Series B), 3.80% TOBs
(AIG Funding, Inc.),
Mandatory Tender 6/23/1999 10,000,000
FLORIDA-1.4%
4,000,000 Alachua County, FL, IDRBs
(Series 1997) Weekly VRDNs
(Florida Rock
Industries, Inc.)/(Bank of
America NT and SA, San
Francisco LOC) 4,000,000
2,000,000 Greater Orlando (FL)
Aviation Authority,
Airport Facilities
Subordinated CP Notes
(Series B), 3.45% CP,
Mandatory Tender 6/21/1999 2,000,000
TOTAL 6,000,000
HAWAII-1.4%
6,170,000 2 Hawaii State Airport
System, (2nd Series of
1998) PT-238, 3.30% TOBs
(MBIA INS)/
(Credit Suisse First
Boston LIQ), Mandatory
Tender 2/17/2000 6,170,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
IDAHO-0.0%
$ 20,000 Idaho Housing Agency, PA-
115 (1994 Series F) Weekly
VRDNs (Merrill Lynch
Capital Services, Inc.
LIQ) $ 20,000
ILLINOIS-7.8%
2,000,000 Chicago, IL O'Hare
International Airport,
International Terminal
(Series A), 7.25% Bonds
(MBIA INS), 1/1/2000 2,045,848
6,850,000 Chicago, IL, Gas Supply
Revenue Bonds (1993 Series
B), 3.20% TOBs (Peoples Gas
Light & Coke Co.), Optional
Tender 12/1/1999 6,850,000
7,150,000 Illinois Development
Finance Authority, (Series
1997) Weekly VRDNs (Tempco
Electric Heater
Corp.)/(First National
Bank of Chicago LOC) 7,150,000
2,700,000 Illinois Development
Finance Authority,
Adjustable Rate IDRB
(Series 1996A)
Weekly VRDNs (Nimlok
Co.)/(Bank One, Illinois,
N.A. LOC) 2,700,000
5,000,000 2 Illinois Housing
Development Authority, PT-
7, 3.38% TOBs (AMBAC INS)/
(Merrill Lynch Capital
Services, Inc. LIQ),
Optional Tender 5/11/2000 5,000,000
6,895,000 2 Illinois Housing
Development Authority, PT-
82 (1994 Series B), 3.20%
TOBs (Rabobank Nederland,
Utrecht LIQ), Mandatory
Tender 10/7/1999 6,895,000
3,595,000 Morton, IL, IDRB (Series
1996) Weekly VRDNs (Morton
Welding Co, Inc. Project)/
(Bank One, Illinois, N.A.
LOC) 3,595,000
TOTAL 34,235,848
INDIANA-10.6%
1,445,000 Carmel, IN, (Series 1996-
A) Weekly VRDNs (Telamon
Corp.)/(Huntington
National Bank, Columbus,
OH LOC) 1,445,000
1,760,000 Crown Point, IN, IDA Weekly
VRDNs (D & M
Manufacturing)/(National
City Bank, Kentucky LOC) 1,760,000
2,020,000 Huntingburg, IN, (Series
1994) Weekly VRDNs (DMI
Furniture, Inc.)/(Bank
One, Indiana, N.A. LOC) 2,020,000
2,230,000 Huntingburg, IN, EDRB
(Series 1993) Weekly VRDNs (DMI Furniture, Inc.)/ (Bank One,
Indiana, N.A.
LOC) 2,230,000
1,740,000 Indiana Development
Finance Authority, (Series
1996) Weekly VRDNs
(Meridian Group LLC
Project)/(Bank One,
Indiana, N.A. LOC) 1,740,000
700,000 Indiana EDC, (Series 1989)
Weekly VRDNs (O'Neal
Steel, Inc.)/(SouthTrust
Bank
of Alabama, Birmingham
LOC) 700,000
2,445,000 Indianapolis, IN, (Series 1991) Weekly VRDNs (Cantor &
Coleman II Project)/ (Bank One, Indiana, N.A.
LOC) 2,445,000
6,500,000 Jeffersonville, IN,
(Series 1997A) Weekly
VRDNs (Wayne Steel,
Inc.)/(Bank One, Ohio,
N.A. LOC) 6,500,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
INDIANA-CONTINUED
$ 3,675,000 Lawrence, IN, (Series
1998) Weekly VRDNs
(Lawrence Affordable
Housing, LLC)/
(Bank One, Arizona N.A.
LOC) $ 3,675,000
1,675,000 Lebanon, IN IDA, (Series
1991) Weekly VRDNs (White
Castle System)/
(Bank One, Ohio, N.A. LOC) 1,675,000
5,950,000 North Manchester, IN,
(Series 1997) Weekly VRDNs
(Eften, Inc.)/
(Comerica Bank, Detroit,
MI LOC) 5,950,000
10,000,000 Portage, IN, (Series 1998-
A) Weekly VRDNs (American
Iron Oxide Co. Project)/
(Bank of Tokyo-Mitsubishi
Ltd. LOC) 10,000,000
2,600,000 Tippecanoe County, IN
Economic Development
Revenue Weekly VRDNs
(Lafayette Venetian
Blind)/(PNC Bank, N.A.
LOC) 2,600,000
1,000,000 Wayne Township, IN Metro
School District, 3.55%
TANs, 12/31/1999 1,001,415
2,840,000 Westfield, IN IDR, (Series
1994) Weekly VRDNs
(Standard Locknut &
Lockwasher, Inc.)/(Bank
One, Indiana, N.A. LOC) 2,840,000
TOTAL 46,581,415
IOWA-0.4%
1,750,000 Iowa Finance Authority,
IDRB Weekly VRDNs (V-T
Industries, Inc. Project)/
(Norwest Bank Minnesota,
N.A. LOC) 1,750,000
KANSAS-1.8%
7,990,000 2 Sedgwick & Shawnee
Counties, KS, PT-227,
3.77% TOBs (GNMA
COL)/(Credit Suisse First
Boston LIQ), Optional
Tender 7/8/1999 7,990,000
KENTUCKY-6.0%
2,600,000 Clark County, KY, IDR
Weekly VRDNs (Walle Corp.) 2,600,000
1,800,000 Henderson County, KY,
(Series 1996A) Weekly
VRDNs (Gibbs Die Casting
Corp.)/(Harris Trust &
Savings Bank, Chicago LOC) 1,800,000
1,020,000 Jefferson County, KY, IDR
(Series 1991) Weekly VRDNs
(Findley Adhesives)/
(Bank One, Ohio, N.A. LOC) 1,020,000
2,000,000 Jefferson County, KY, IDR
Weekly VRDNs (O'Neal
Steel, Inc.)/(SouthTrust
Bank of Alabama,
Birmingham LOC) 2,000,000
2,000,000 Kentucky Housing Corp.,
(Series C), 3.20% TOBs
12/31/1999 2,000,000
6,000,000 2 Kentucky Housing Corp.,
Variable Rate Certificates (Series 1998 O), 3.80% TOBs (Bank
of America NT and SA, San Francisco LIQ),
Mandatory Tender 8/10/1999 6,000,000
6,000,000 2 Kentucky Housing Corp.,
Variable Rate Certificates (Series 1998 W), 3.25% TOBs (Bank
of America NT and SA, San Francisco LIQ),
Optional Tender 6/15/1999 6,000,000
5,000,000 Louisville & Jefferson
County, KY Regional
Airport Authority, (Series
1997 AA-1) Weekly VRDNs
(National City Bank,
Kentucky LOC) 5,000,000
TOTAL 26,420,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
LOUISIANA-0.5%
$ 2,000,000 Jefferson Parish, LA Home
Mortgage Authority,
(Series 1998A-2), 3.63%
BANs, 9/1/1999 $ 2,000,000
MARYLAND-2.4%
2,050,000 Cecil County, MD, County
Commissioners EDRB (Series
1988S) Weekly VRDNs
(Williams Mobile Offices,
Inc.)/(FMB Bank LOC) 2,050,000
2,090,000 Maryland EDC, (Series
1998A) Weekly VRDNs
(Catterton Printing
Company Facility)/(FMB
Bank LOC) 2,090,000
1,255,000 Maryland EDC, (Series
1998B) Weekly VRDNs
(Catterton Printing
Company Facility)/(FMB
Bank LOC) 1,255,000
985,000 Maryland State Community
Development
Administration, (Series
1990A) Weekly VRDNs
(College Estates)/(FMB
Bank LOC) 985,000
800,000 Maryland State Community
Development
Administration, (Series
1990B) Weekly VRDNs
(Cherry Hill Apartment
Ltd.)/(Nationsbank, N.A.,
Charlotte LOC) 800,000
3,260,000 Wicomico County, MD, EDRB
(Series 1994) Weekly VRDNs
(Field Container Co. L.P.)/
(Northern Trust Co.,
Chicago, IL LOC) 3,260,000
TOTAL 10,440,000
MASSACHUSETTS-1.2%
5,000,000 Westfield, MA, 3.75% BANs,
10/22/1999 5,013,301
MICHIGAN-1.3%
1,215,000 Michigan Strategic Fund,
(Series 1991) Weekly VRDNs
(AGA Gas, Inc.)/
(Svenska Handelsbanken,
Stockholm LOC) 1,215,000
4,500,000 Wayne County, MI, PT-1061
Weekly VRDNs (Detroit
Metropolitan Wayne County
Airport)/(MBIA INS)/(Bank
of America NT and SA, San
Francisco LIQ) 4,500,000
TOTAL 5,715,000
MINNESOTA-6.4%
2,500,000 Brooklyn Park, MN EDA,
(Series 1999) Weekly VRDNs
(Midwest Finishing, Inc.)/
(Norwest Bank Minnesota,
N.A. LOC) 2,500,000
5,680,000 2 Dakota County, Washington
County & Anoka City, MN
Housing & Redevelopment
Authority, MERLOTs (Series
H), 3.15% TOBs (United
States Treasury COL)/
(First Union National
Bank, Charlotte, NC LIQ),
Optional Tender 6/1/1999 5,680,000
2,910,000 Lino Lakes, MN, (Series
1998) Weekly VRDNs (Molin
Concrete Products
Co.)/(Norwest Bank
Minnesota, N.A. LOC) 2,910,000
700,000 Minnesota State Higher
Education Coordinating
Board, (Series 1992A)
Weekly VRDNs (U.S. Bank,
N.A., Minneapolis LIQ) 700,000
1,650,000 New Hope, MN, Park Acres
Apartments (Series 1997),
4.57% TOBs (Bayerische
Landesbank Girozentrale),
Optional Tender 3/1/2000 1,650,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
MINNESOTA-CONTINUED
$ 785,000 Plymouth, MN Weekly VRDNs
(Nuaire, Inc.)/(Norwest
Bank Minnesota, N.A. LOC) $ 785,000
1,000,000 Plymouth, MN, (Series
1998) Weekly VRDNs
(Nuaire, Inc.)/(Norwest
Bank Minnesota, N.A. LOC) 1,000,000
1,890,000 Red Wing, MN Port
Authority, (Series 1998)
Weekly VRDNs (Food Service
Specialties)/(Norwest Bank
Minnesota, N.A. LOC) 1,890,000
2,200,000 Robbinsdale, MN, Bridgeway
Apartments (Series 1997),
4.57% TOBs (Bayerische
Landesbank Girozentrale),
Optional Tender 3/1/2000 2,200,000
5,500,000 St. Michael, MN, (Series
1999) Weekly VRDNs
(TC/American Monorail,
Inc.)/
(Norwest Bank Minnesota,
N.A. LOC) 5,500,000
605,000 St. Paul, MN Port Authority
Weekly VRDNs (H.M. Smyth
Co., Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 605,000
2,345,000 White Bear, MN Weekly VRDNs
(Thermoform Plastic,
Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 2,345,000
TOTAL 27,765,000
MISSISSIPPI-0.8%
1,700,000 Mississippi Business
Finance Corp. Weekly VRDNs
(O'Neal Steel,
Inc.)/(SouthTrust Bank of
Alabama, Birmingham LOC) 1,700,000
1,625,000 Mississippi Business
Finance Corp., IDRB
(Series 1994) Weekly VRDNs
(Flexsteel Industries,
Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 1,625,000
TOTAL 3,325,000
MISSOURI-3.2%
2,550,000 Missouri Development Finance Board, IDRBs (Series 1996)
Weekly VRDNs (LaGrange Foundry Inc. Project)/(Harris Trust &
Savings Bank, Chicago LOC) 2,550,000
525,000 Missouri Export &
Infrastructure Board
Weekly VRDNs (Ex-L-Tube,
Inc.)/
(Norwest Bank Minnesota,
N.A. LOC) 525,000
3,950,000 Moberly, MO IDA, (Series
1996) Weekly VRDNs
(Everlast Fitness
Manufacturing
Corp.)/(Chase Manhattan
Bank N.A., New York LOC) 3,950,000
7,000,000 Perry County, MO, (Series
1996) Weekly VRDNs (TG
(U.S.A), Inc.)/
(Bank of Tokyo-Mitsubishi
Ltd. LOC) 7,000,000
TOTAL 14,025,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
MONTANA-0.5%
$ 2,140,000 2 Montana State Board of
Housing, MERLOTS (Series
F), 3.40% TOBs (First Union
National Bank, Charlotte,
NC LIQ), Optional Tender
7/1/1999 $ 2,140,000
MULTI STATE-0.9%
3,900,000 Charter Mac Floater
Certificates Trust I,
(Third Tranche) Weekly
VRDNs (MBIA INS)/
(Bayerische Landesbank
Girozentrale, Commerzbank
AG, Frankfurt and Credit
Communal de Belgique,
Brussles LIQs) 3,900,000
2,000 Clipper Tax-Exempt Trust
(AMT MultiState), (Series
A) Weekly VRDNs (State
Street Bank and Trust Co.
LIQ) 2,000
TOTAL 3,902,000
NEBRASKA-0.5%
2,400,000 Douglas County, NE,
(Series 1991) Weekly VRDNs
(Malhove, Inc.)/(Norwest
Bank Minnesota, N.A. LOC) 2,400,000
NEW HAMPSHIRE-0.5%
2,010,000 New Hampshire State IDA,
(Series 1991), 4.25% TOBs
(International Paper Co.),
Optional Tender 10/15/1999 2,010,000
NEW JERSEY-0.3%
1,375,000 New Jersey Housing &
Mortgage Financing
Authority, CDC Municipal
Products Class A
Certificates (Series
1996B) Weekly VRDNs (MBIA
INS)/(CDC Municipal
Products, Inc. LIQ) 1,375,000
NORTH CAROLINA-1.5%
6,400,000 Person County, NC
Industrial Facilities &
Pollution Control
Financing Authority Daily
VRDNs (Carolina Power &
Light Co.)/(SunTrust Bank,
Atlanta LOC) 6,400,000
NORTH DAKOTA-0.2%
1,000,000 Fargo, ND, Variable Rate
Demand IDRBs (Series 1997)
Weekly VRDNs (Owen
Industries, Inc.)/(Mellon
Bank N.A., Pittsburgh LOC) 1,000,000
OHIO-5.5%
1,500,000 Clermont County, OH,
Variable Rate IDRBs
(Series 1997) Weekly VRDNs
(Buriot International,
Inc.)/(KeyBank, N.A. LOC) 1,500,000
2,000,000 Dover, OH, 3.60% BANs,
5/25/2000 2,005,689
3,000,000 Medina County, OH, (Series
1998) Weekly VRDNs (Mack
Industries)/(Huntington
National Bank, Columbus,
OH LOC) 3,000,000
7,400,000 Ohio HFA, Trust Receipts,
(Series 1996 FR/RI-5)
Weekly VRDNs (GNMA COL)/
(Bank of New York, New York
LIQ) 7,400,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
OHIO-CONTINUED
$ 4,995,000 2 Ohio HFA, Variable Rate
Certificates (Series
1998Q), 3.75% TOBs (GNMA
COL)/(Bank of America NT
and SA, San Francisco LIQ),
Optional Tender 8/4/1999 $ 4,995,000
3,190,000 Ohio State Public
Facilities Commission,
(Series II-C), 5.10% Bonds
(MBIA INS), 12/1/1999 3,220,893
2,045,000 Stark County, OH IDR Weekly
VRDNs (Shearer's Foods,
Inc.)/(Bank One,
Ohio, N.A. LOC) 2,045,000
TOTAL 24,166,582
OKLAHOMA-2.2%
2,300,000 Adair County, OK IDA,
(Series B) Weekly VRDNs
(Baldor Electric
Co.)/(Wachovia Bank of NC,
N.A., Winston-Salem LOC) 2,300,000
3,300,000 Broken Arrow, OK EDA Weekly
VRDNs (Blue Bell
Creameries)/(Banque
Nationale de Paris LOC) 3,300,000
4,100,000 Oklahoma Development
Finance Authority, 3.20%
TOBs (Simmons Poultry
Farms)/
(Rabobank Nederland,
Utrecht LOC), Optional
Tender 8/1/1999 4,100,000
TOTAL 9,700,000
OREGON-0.6%
2,490,000 Oregon School Boards
Association, Pooled Short-
Term Borrowing Program
(Series 1998A), 4.00%
TRANs, 6/30/1999 2,490,000
PENNSYLVANIA-1.8%
4,700,000 Carbon County, PA IDA,
Solid Waste Disposal
Revenue Bonds, 3.50% RANs
(Horsehead Resource
Development, Inc.)/(Chase
Manhattan Bank N.A.,
New York LOC), 12/3/1999 4,700,000
1,175,000 Pennsylvania EDFA Weekly
VRDNs (Stone and Lime
Co.)/(PNC Bank, N.A. LOC) 1,175,000
1,500,000 Pennsylvania EDFA, (1995
Series D2) Weekly VRDNs
(ARCO Enterprises,
Inc./Ronald L. Repasky,
Sr. Project)/(PNC Bank,
N.A. LOC) 1,500,000
700,000 Pennsylvania EDFA, (1995
Series D9) Weekly VRDNs
(North American
Communications, Inc.
Project)/(PNC Bank, N.A.
LOC) 700,000
TOTAL 8,075,000
RHODE ISLAND-0.6%
2,800,000 Central Falls, RI, 3.90%
BANs, 7/15/1999 2,800,985
SOUTH CAROLINA-1.3%
3,700,000 South Carolina Job Development Authority, (Series 1996)
Weekly VRDNs (PVC Container Corp. Project)/(Fleet Bank N.A.
LOC) 3,700,000
1,885,000 South Carolina Job
Development Authority,
EDRB (Series 1994) Weekly
VRDNs (Carolina Cotton
Works, Inc.
Project)/(Branch Banking &
Trust Co, Wilson LOC) 1,885,000
TOTAL 5,585,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
SOUTH DAKOTA-3.4%
$ 3,000,000 South Dakota Housing
Development Authority,
(1998 Series B), 3.75%
BANs, 8/5/1999 $ 3,000,000
5,250,000 South Dakota Housing
Development Authority,
(Series I), 3.20% BANs,
12/2/1999 5,250,000
6,570,000 South Dakota Housing
Development Authority,
Homeownership Mortgage
Bonds (1997 Series E)
Weekly VRDNs 6,570,000
TOTAL 14,820,000
TENNESSEE-4.9%
5,000,000 Cocke County, TN IDB,
(Series 1996) Weekly VRDNs
(Newport Precision, Inc.)/
(Bank of Tokyo-Mitsubishi
Ltd. LOC) 5,000,000
2,000,000 Dickson County, TN IDB,
(Series 1996) Weekly VRDNs
(Tennessee Bun Company,
LLC Project)/(PNC Bank,
N.A. LOC) 2,000,000
630,000 Greenfield, TN IDB,
(Series 1995) Weekly VRDNs
(Plastic Products Co.
Project)/
(Norwest Bank Minnesota,
N.A. LOC) 630,000
965,000 Hawkins County, TN IDB,
(Series 1995) Weekly VRDNs
(Sekisui Ta Industries,
Inc. Project)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 965,000
1,800,000 Knox County, TN IDB,
(Series 1996) Weekly VRDNs
(Health Ventures, Inc.
Project)/
(SunTrust Bank, Nashville
LOC) 1,800,000
620,000 McMinn County, TN IDBs,
(Series 1995) Weekly VRDNs
(Creative Fabrication
Corp.)/(NBD Bank, Michigan
LOC) 620,000
800,000 Morristown, TN IDB Weekly
VRDNs (Tuff Torq
Corp.)/(Bank of Tokyo-
Mitsubishi Ltd. LOC) 800,000
1,800,000 Oak Ridge, TN IDB, Solid
Waste Facility Bonds
(Series 1996) Weekly VRDNs
(M4 Environmental L.P.
Project)/(SunTrust Bank,
Atlanta LOC) 1,800,000
7,500,000 Tennessee Housing
Development Agency,
(Series 1997K) Weekly
VRDNs
(Bank of America NT and SA,
San Francisco LIQ) 7,500,000
500,000 Union City, TN IDB, (Series
1995) Weekly VRDNs (Kohler
Co.)/(Wachovia Bank
of NC, N.A., Winston-Salem
LOC) 500,000
TOTAL 21,615,000
TEXAS-5.3%
7,400,000 ABIA Development
Corporation, TX, Airport
Facilities Revenue Bonds
PT-117
Weekly VRDNs (Austin
Airport)/(Asset Guaranty
INS)/(Merrill Lynch
Capital Services, Inc.
LIQ) 7,400,000
4,000,000 Angelina and Neches River
Authority, Texas, Solid
Waste Disposal Revenue
Bonds (Series 1993), 3.70%
CP (Temple-Eastex,
Inc.)/(Temple-Inland, Inc.
GTD), Mandatory Tender
6/8/1999 4,000,000
2,900,000 Brazos Harbor, TX IDC,
(Series 1991) Weekly VRDNs
(Rangen, Inc.
Project)/(Norwest Bank
Minnesota, N.A. LOC) 2,900,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
TEXAS-CONTINUED
$ 3,250,000 Houston, TX Airport
System, (Series 1998A) PT-
1102 Weekly VRDNs (FGIC
INS)/
(Merrill Lynch Capital
Services, Inc. LIQ) $ 3,250,000
2,995,000 2 Southeast Texas Housing
Finance Corp., PT-165,
3.35% TOBs (GNMA
COL)/(Banque Nationale de
Paris LIQ), Optional
Tender 3/9/2000 2,995,000
2,800,000 Tarrant County, TX IDC
Weekly VRDNs (Holden
Business Forms)/(Norwest
Bank Minnesota, N.A. LOC) 2,800,000
TOTAL 23,345,000
UTAH-0.9%
4,000,000 West Jordan, UT, (Series
1999) Weekly VRDNs (Penco
Products, Inc.)/
(KeyBank, N.A. LOC) 4,000,000
VIRGINIA-2.8%
1,000,000 Campbell County, VA IDA,
Solid Waste Disposal
Facilities Revenue ACES
Weekly VRDNs (Georgia-
Pacific Corp.)/(SunTrust
Bank, Atlanta LOC) 1,000,000
155,000 Carroll County, VA IDA,
IDRB (Series 1995) Weekly
VRDNs (Kentucky Derby
Hosiery Co, Inc
Project)/(Bank One,
Kentucky LOC) 155,000
7,000,000 2 Fairfax County, VA EDA,
Trust Receipt FR/RI-A15 (Series 1999), 3.30% TOBs (AMBAC
INS)/(National Westminster Bank, PLC, London LIQ), Mandatory
Tender 8/2/1999 7,000,000
4,000,000 Halifax, VA IDA, MMMs, PCR,
3.25% CP (Virginia
Electric Power Co.),
Mandatory Tender 8/9/1999 4,000,000
TOTAL 12,155,000
WASHINGTON-1.8%
8,000,000 Pierce County, WA EDC,
(Series 1995) Weekly VRDNs
(Simpson-Tacoma Kraft
Company Project)/(Bank of
America, Northwest LOC) 8,000,000
WEST VIRGINIA-0.9%
2,300,000 West Virginia EDA, (Series
1998) Weekly VRDNs
(Quality Engineered
Steels, LLC)/
(Commerce Bank, Kansas
City, N.A. LOC) 2,300,000
1,750,000 West Virginia Public
Energy Authority, Energy
Revenue Bonds (1989 Series
A), 3.15% CP (Morgantown
Energy Associates)/(UBS AG
LOC), Mandatory Tender
8/9/1999 1,750,000
TOTAL 4,050,000
WISCONSIN-1.8%
1,800,000 Marshfield, WI, IDR (Series 1993) Weekly VRDNs (Building
Systems, Inc.)/ (Bank One, Wisconsin, N.A.
LOC) 1,800,000
1,120,000 Plover, WI Weekly VRDNs
(Sirco Manufacturing,
Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 1,120,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
WISCONSIN-CONTINUED
$ 3,030,000 Prentice Village, WI,
Limited Obligation Revenue
Refunding Bonds (Series A)
Weekly VRDNs (Biewer-
Wisconsin Sawmill, Inc.
Project)/(Michigan
National Bank, Farmington
Hills LOC) $ 3,030,000
600,000 Shell Lake, WI Weekly VRDNs
(Doboy Packaging)/(UBS AG
LOC) 600,000
1,320,000 Waukesha, WI, IDRB (Series
1995) Weekly VRDNs
(Weldall Manufacturing
Inc. Project)/(Bank One,
Wisconsin, N.A. LOC) 1,320,000
TOTAL 7,870,000
WYOMING-2.3%
10,000,000 2 Wyoming Community
Development Authority, PT-
195, 3.35% TOBs (Banco
Santander Central Hispano,
S.A. LIQ) 5/1/2000 10,000,000
TOTAL INVESTMENTS (AT
AMORTIZED COST) 3 $ 433,211,651
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 92.5% of the
portfolio as calculated based upon total portfolio market value.
1 The fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's, MIG-1 or MIG-2 by Moody's Investors Service, Inc., or F-1+, F-1 and F-2
by Fitch IBCA, are all considered rated in one of the two highest short-term
rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security.
At May 31, 1999, the portfolio securities were rated as follows:
Tier Rating Percentage Based on Total Market Value (Unaudited)
FIRST TIER Second Tier
100.0% 0%
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's board of directors. At May 31, 1999, these
securities amounted to $70,865,000, which represents 16.2% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($437,450,810) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ACES -Adjustable Convertible Extendable Securities AMBAC -American Municipal
Bond Assurance Corporation AMT -Alternative Minimum Tax BANs -Bond Anticipation
Notes COL -Collateralized CP -Commercial Paper EDA -Economic Development
Authority EDC -Economic Development Commission
EDFA -Economic Development Financing Authority EDRBs -Economic Development
Revenue Bonds FGIC -Financial Guaranty Insurance Company FSA -Financial Security
Assurance GNMA -Government National Mortgage Association GTD -Guaranty HFA
- -Housing Finance Authority IDA -Industrial Development Authority IDB -Industrial
Development Bond IDC -Industrial Development Corporation IDR -Industrial
Development Revenue IDRB -Industrial Development Revenue Bond INS -Insured LIQ
- -Liquidity Agreement LLC -Limited Liability Company LOC -Letter of Credit MBIA
- -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series MMMs
- -Money Market Municipals PCR -Pollution Control Revenue PLC -Public Limited
Company RANs -Revenue Anticipation Notes SA -Support Agreement TANs -Tax
Anticipation Notes TOBs -Tender Option Bonds TRANs -Tax and Revenue Anticipation
Notes VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at amortized
cost and value $ 433,211,651
Cash 2,268,880
Income receivable 3,241,087
Receivable for shares sold 1,332,516
TOTAL ASSETS 440,054,134
LIABILITIES:
Payable for shares
redeemed $ 2,076,582
Income distribution
payable 311,801
Accrued expenses 214,941
TOTAL LIABILITIES 2,603,324
Net assets for 437,450,810
shares outstanding $ 437,450,810
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$437,450,810 / 437,450,810
shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MAY 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 20,559,701
EXPENSES:
Investment advisory fee $ 2,866,150
Administrative personnel
and services fee 432,215
Custodian fees 29,303
Transfer and dividend
disbursing agent fees and
expenses 513,909
Directors'/Trustees' fees 6,392
Auditing fees 12,884
Legal fees 21,652
Portfolio accounting fees 98,986
Distribution services fee 573,230
Shareholder services fee 1,433,075
Share registration costs 15,350
Printing and postage 352,202
Insurance premiums 66,609
Taxes 50,502
Miscellaneous 13,147
TOTAL EXPENSES 6,485,606
WAIVER:
Waiver of investment
advisory fee (670,762)
NET EXPENSES 5,814,844
Net investment income $ 14,744,857
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 14,744,857 $ 16,629,089
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (14,744,857) (16,629,089)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 2,025,211,320 2,320,881,148
Net asset value of shares
issued to shareholders in
payment of
distributions declared 13,799,382 16,001,086
Cost of shares redeemed (2,249,372,662) (2,204,129,137)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (210,361,960) 132,753,097
Change in net assets (210,361,960) 132,753,097
NET ASSETS:
Beginning of period 647,812,770 515,059,673
End of period $ 437,450,810 $ 647,812,770
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.03 0.03 0.03 0.03
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.03)
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 2.58% 2.90% 2.80% 3.04% 2.84%
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 1.13% 1.11% 1.08% 1.32% 1.04%
Net investment income 2 2.45% 2.76% 2.66% 2.66% 2.71%
Expenses (after waivers) 1.01% 1.01% 0.99% 0.99% 0.99%
Net investment income (after waivers) 2.57% 2.86% 2.75% 2.99% 2.76%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $437,451 $647,813 $515,060 $478,605 $445,164
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers and reimbursements had not occurred, the ratios would
have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999
ORGANIZATION
Cash Trust Series, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Corporation consists of four portfolios.The financial
statements included herein are only those of Municipal Cash Series (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held. The investment objective of the Fund
is current income exempt from federal regular income tax consistent with
stability of principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
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 Fund'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 Fund may engage in when-issued or delayed delivery transactions. The Fund
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Directors (the "Directors"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Act.
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.
CAPITAL STOCK
At May 31, 1999, there were 12,500,000,000 shares ($0.001 par value per share)
authorized. At May 31, 1999, capital paid-in aggregated $437,450,810.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
Shares sold 2,025,211,320 2,320,881,148
Shares issued to
shareholders in payment of
distributions declared 13,799,382 16,001,086
Shares redeemed (2,249,372,662) (2,204,129,137)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (210,361,960) 132,753,097
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund 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, Inc. 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.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's shares.
The Plan provides that the Fund may incur distribution expenses up to 0.35% of
the average daily net assets of the Fund shares, annually, to reimburse FSC.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. 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 Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
INTERFUND TRANSACTIONS
During the period ended May 31, 1999, the Fund engaged in purchase and sale
transactions with funds that have a common investment adviser (or affiliated
investment advisers), common Directors/Trustees, and/or common Officers. These
purchase and sale transactions were made at current market value pursuant to
Rule 17a-7 under the Act amounting to $674,200,000 and $868,780,000,
respectively.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS OF CASH TRUST SERIES, INC.
AND SHAREHOLDERS OF MUNICIPAL CASH SERIES:
We have audited the accompanying statement of assets and liabilities of
Municipal Cash Series (a portfolio of Cash Trust Series, Inc.), including the
portfolio of investments, as of May 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended May 31, 1999 and 1998, and the financial highlights for the
years presented. These financial statements and financial highlights are the
responsibility of the Fund'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 securities owned as of May
31, 1999, by correspondence with the custodian and brokers. 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Municipal Cash Series as of May 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for the years ended May 31, 1999
and 1998, and its financial highlights for the years presented, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 12, 1999
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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 mutual funds involves investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
[Graphic]
Federated
World-Class Investment Manager
ANNUAL REPORT
Municipal
Cash Series
ANNUAL REPORT
TO SHAREHOLDER
MAY 31, 1999
[Graphic]
Federated
Municipal Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 147551303
0062903 (7/99)
[Graphic]
ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Prime Cash Series,
a portfolio of Cash Trust Series, Inc., which covers the 12-month period from
June 1, 1998 through May 31, 1999. The report contains a commentary by the
fund's portfolio manager, followed by a complete listing of the fund's
investments on the last day of the reporting period and its financial
statements.
Prime Cash Series is a practical way to help your cash pursue daily income while
offering you the additional advantages of daily liquidity and stability of
principal. 1 The fund invests in high-quality, short-term securities. At the end
of the reporting period, the portfolio was invested primarily in commercial
paper (36.6%) and variable rate notes (22.6%). It also held positions in
repurchase agreements (13.4%), certificates of deposit (8.6%), corporate notes
(8.0%), loan participation notes (7.1%), and time deposits (5.3%).
Dividends paid to shareholders during the reporting period totaled $0.04 per
share. On May 31, 1999, the fund's net assets reached $4.7 billion.
As always, we thank you for keeping your ready cash working through Prime Cash
Series. Please contact your investment representative if you have any questions.
We look forward to keeping you up to date on your investment.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
1 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Investment Review
Prime Cash Series invests in money market instruments maturing in 13 months or
less. The average maturity of these securities, computed on a dollar-weighted
basis, is restricted to 90 days or less. Portfolio securities must be rated in
one of the two highest short-term rating categories by one or more of the
nationally recognized statistical rating organizations or be of comparable
quality to securities having such ratings. Typical security types include, but
are not limited to, commercial paper, certificates of deposit, time deposits,
variable rate instruments and repurchase agreements.
During the last half of 1998 the U.S. and global economies slowed as one crisis
after another arose. Asia, Russia, Latin America and the continuing recession in
Japan all seemed to lead to stagnant growth in the U.S. and abroad. The Federal
Reserve Board (the "Fed") cut interest rates by 75 basis points during the
fourth quarter of 1998 to stimulate the economy. By early 1999 we learned that
gross domestic product growth in the U.S. was a phenomenal 5.60% for 1998.
Recently low unemployment numbers, strong retail sales and relative optimism
overseas lead us to believe that the Fed will reverse its easier stance from
last fall.
Thirty-day commercial paper started the reporting period at 5.55% on May 31,
1998, and then declined in lock step with the federal funds target rate as the
Federal Open Market Committee cut interest rates by 25 basis points on September
29, October 15, and November 17, 1998. Thirty-day commercial paper rates on May
31, 1999 were 4.97%.
The target average maturity for Prime Cash Series was lengthened throughout 1998
from a 35-45 day range to a 50 to 60-day range, reflecting our outlook for a
slowing economy. Today we are maintaining our 50 to 60-day target range as we
look for the Fed to slowly increase rates during the second half of 1999. In
structuring the fund, there is continued emphasis placed on positioning 30-35%
of the fund's assets in variable rate demand notes and accomplishing a modest
barbell structure.
During the 12 months ended May 31, 1999, the net assets of Prime Cash Series
increased from $3,748.0 to $4,728.4 million while the seven-day net yield
decreased from 4.66% to 4.03%. The effective average maturity of the fund on May
31, 1999, was 59 days.
Portfolio of Investments
MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
CERTIFICATE OF DEPOSIT-
8.6%
BANKING-8.6%
$ 15,000,000 Bank of Montreal, 5.250%,
5/12/2000 $ 14,993,157
35,000,000 Bank of Nova Scotia,
Toronto, 5.290%, 3/9/2000 34,989,593
25,000,000 Barclays Bank of Canada,
(Guaranteed by Barclays
Bank PLC, London), 5.016%,
1/13/2000 24,995,522
29,000,000 Bayerische Landesbank
Girozentrale, 5.115%,
3/21/2000 28,989,568
139,000,000 Canadian Imperial Bank of
Commerce, 4.987% - 5.340%,
1/27/2000 - 3/3/2000 138,957,707
14,000,000 Canadian Imperial Bank of
Commerce, 5.160%,
2/23/2000 13,996,053
10,000,000 Commerzbank AG, Frankfurt,
5.200%, 4/7/2000 9,996,718
55,000,000 Rabobank Nederland,
Utrecht, 5.180%, 3/20/2000 54,982,995
12,000,000 Svenska Handelsbanken,
Stockholm, 5.180%,
3/20/2000 11,997,217
15,000,000 Toronto-Dominion Bank,
4.930%, 7/14/1999 15,011,178
60,000,000 UBS AG, 4.939% - 5.300%,
1/13/2000 - 3/10/2000 59,986,049
TOTAL CERTIFICATE OF
DEPOSIT 408,895,757
COMMERCIAL PAPER-36.6% 1
AIRLINES-0.1%
3,000,000 United Parcel Service,
4.983%, 6/4/1999 2,998,795
BANKING-7.0%
45,000,000 Abbey National N.A. Corp.,
(Guaranteed by Abbey
National Bank PLC,
London), 5.043% - 5.139%,
11/26/1999 - 12/1/1999 43,893,517
130,000,000 Aspen Funding Corp.,
(MBIA), 4.845% - 4.933%,
6/1/1999 - 7/9/1999 129,828,622
30,000,000 Bank of Nova Scotia,
Toronto, 5.030%, 9/30/1999 29,507,429
39,168,000 Fountain Square Commercial
Funding Corp., (Fifth
Third Bank, Cincinnati
SA),
4.848% - 5.034%, 6/1/1999 -
7/12/1999 39,131,765
15,118,000 Gotham Funding Corp.,
4.917%, 6/18/1999 15,083,019
25,305,000 Three Rivers Funding
Corp., 4.850% - 4.903%,
6/10/1999 - 7/15/1999 25,202,623
30,000,000 UBS Finance (Delaware),
Inc., (UBS AG LOC), 5.042%,
12/23/1999 29,169,750
20,000,000 Wood Street Funding Corp.,
4.858%, 7/9/1999 19,898,244
TOTAL 331,714,969
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER-continued
1
BROKERAGE-2.3%
$ 50,000,000 Morgan Stanley, Dean
Witter & Co., 4.904%,
6/4/1999 $ 49,979,750
59,000,000 Salomon Smith Barney
Holdings, Inc., 4.867% -
4.890%, 6/8/1999 -
7/13/1999 58,845,509
TOTAL 108,825,259
CHEMICALS-1.6%
38,788,000 IMC Global, Inc., 5.039% -
5.115%, 6/9/1999 -
8/17/1999 38,497,916
39,200,000 Rohm & Haas Co., 4.976%,
7/1/1999 39,038,300
TOTAL 77,536,216
ELECTRIC POWER-0.2%
6,985,000 Southern Electric
Generating Co. (SEGCO),
5.005% - 5.039%, 7/12/1999 6,945,507
FINANCE - AUTOMOTIVE-0.5%
25,000,000 Ford Motor Credit Corp.,
4.933%, 6/1/1999 25,000,000
FINANCE - COMMERCIAL-18.8%
100,000,000 Asset Securitization
Cooperative Corp., 4.827%
- 4.913%, 6/3/1999 -
7/15/1999 99,694,333
24,000,000 Beta Finance, Inc., 4.879%
- 4.952%, 6/4/1999 -
8/20/1999 23,854,333
27,980,000 Corporate Asset Funding
Co., Inc. (CAFCO), 4.836%,
6/3/1999 27,972,523
197,950,000 Falcon Asset
Securitization Corp.,
4.825% - 4.852%, 6/2/1999 -
6/15/1999 197,780,338
80,000,000 General Electric Capital
Corp., 4.832% - 4.892%,
6/2/1999 - 7/14/1999 79,685,826
163,885,000 Greenwich Funding Corp.,
4.838% - 4.940%, 6/1/1999 -
7/8/1999 163,640,509
56,785,000 PREFCO-Preferred
Receivables Funding Co.,
4.827% - 4.842%, 6/3/1999 -
6/17/1999 56,730,938
122,162,000 Receivables Capital Corp.,
4.829% - 4.902%, 6/7/1999 -
7/8/1999 121,653,078
120,000,000 Sheffield Receivables
Corp., 4.847% - 4.907%,
6/2/1999 - 7/15/1999 119,783,872
TOTAL 890,795,750
FINANCE - EQUIPMENT-0.1%
4,356,000 Comdisco, Inc., 5.124% -
5.160%, 6/7/1999 4,352,316
FINANCE - RETAIL-2.9%
87,500,000 Associates First Capital
B.V., (Guaranteed by
Associates First Capital
Corp.), 4.901%, 6/7/1999 87,429,271
50,000,000 Diageo Capital PLC,
(Guaranteed by Diageo
PLC), 4.901%, 8/20/1999 49,464,444
TOTAL 136,893,715
INSURANCE-1.1%
31,843,000 CNA Financial Corp.,
5.063% - 5.094%, 7/6/1999 -
8/10/1999 31,582,530
19,000,000 CXC, Inc., 4.836%,
6/2/1999 18,997,461
TOTAL 50,579,991
RETAIL-1.0%
46,941,000 Safeway, Inc., 5.043% -
5.049%, 7/8/1999 -
8/11/1999 46,626,941
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
COMMERCIAL PAPER-continued
1
TELECOMMUNICATIONS-1.0%
$ 46,865,000 MCI Worldcom, Inc., 5.066%
- 5.104%, 6/14/1999 -
8/2/1999 $ 46,474,690
TOTAL COMMERCIAL PAPER 1,728,744,149
CORPORATE NOTES-8.0%
BANKING-1.8%
20,000,000 Abbey National Treasury
Services, PLC, 4.990%,
1/10/2000 19,996,464
63,000,000 SALTS III Cayman Island
Corp., (Guaranteed by
Bankers Trust
International, PLC),
5.250%, 6/18/1999 63,000,000
TOTAL 82,996,464
FINANCE - AUTOMOTIVE-0.6%
10,000,000 Ford Credit Auto Owner
Trust 1999-B, Class A-1,
4.978%, 1/18/2000 10,000,000
10,000,000 Ford Credit Auto Owner
Trust 1999-B, Class A-2,
5.114%, 5/15/2000 10,000,000
8,360,983 Honda Auto Receivables
1999-1 Owner Trust, Class
A-1, 4.974%, 2/15/2000 8,360,983
TOTAL 28,360,983
FINANCE - COMMERCIAL-4.0%
190,000,000 Beta Finance, Inc.,
5.000%-5.520%, 1/20/2000-
6/12/2000 189,999,040
FINANCE - EQUIPMENT-1.5%
6,210,615 Copelco Capital Funding
Trust 1998-A, Class A-1,
5.680%, 8/15/1999 6,210,616
6,669,032 First Sierra Equipment
Contract Trust 1998-1,
Class A-1, 5.215%,
1/12/2000 6,673,982
40,236,149 Green Tree Lease Finance
1998-1, LLC, Class A-1,
5.201%, 1/20/2000 40,236,149
14,839,827 Heller Equipment Asset
Receivables Trust 1999-1,
Class A-1, 4.947%,
5/13/2000 14,839,827
2,356,745 Newcourt Equipment Trust
Securities 1998-1, Class
A-1, 5.007%, 11/20/1999 2,357,019
TOTAL 70,317,593
INSURANCE-0.1%
3,201,758 Americredit Automobile Receivables Trust 1998-D, Class A-1,
(FSA INS),
5.199%, 11/12/1999 3,201,758
2,261,775 WFS Financial 1998-C Owner
Trust, Class A-1, (FSA
INS), 5.395%, 11/20/1999 2,261,775
TOTAL 5,463,533
TOTAL CORPORATE NOTES 377,137,613
LOAN PARTICIPATION-7.1%
BROKERAGE-1.1%
50,000,000 Goldman Sachs Group LP,
4.951%, 6/1/1999 50,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
LOAN PARTICIPATION-
continued
ELECTRICAL EQUIPMENT-0.5%
$ 25,700,000 Mt. Vernon Phenol Plant
Partnership, (Guaranteed
by General Electric Co.),
5.050%, 5/17/2000 $ 25,700,000
FINANCE - AUTOMOTIVE-1.1%
52,000,000 General Motors Acceptance
Corp., Mortgage of PA,
(Guaranteed by General
Motors Acceptance Corp.),
4.950% - 4.970%, 6/1/1999 -
7/1/1999 52,000,000
FINANCE - EQUIPMENT-1.1%
51,000,000 Pitney Bowes Credit Corp.,
4.921%, 6/10/1999 50,937,525
INSURANCE-3.3%
155,000,000 J&H Marsh & McLennan Inc.,
(Guaranteed by Marsh &
McLennan Cos., Inc.),
4.930% - 4.970%, 6/1/1999 -
6/23/1999 155,000,000
TOTAL LOAN PARTICIPATION 333,637,525
NOTES - VARIABLE-22.6% 4
BANKING-7.1%
7,925,000 Adena Health System, Adena
Health System Project
(Series 1998), (Fifth
Third Bank, Cincinnati
LOC), 4.980%, 6/3/1999 7,925,000
2,000,000 American Health Care
Centers, (Series 1998),
(FirstMerit Bank, N.A.
LOC), 5.010%, 6/3/1999 2,000,000
4,260,000 Aurora City, IL, (Series
1995), (National City
Bank, Michigan/Illinois
LOC), 5.180%, 6/3/1999 4,260,000
725,000 Avalon Hotel Associates,
(Corestates Bank N.A.,
Philadelphia, PA LOC),
5.457%, 6/3/1999 725,000
20,000,000 Bankers Trust New York
Corp., 4.950%, 6/4/1999 19,999,888
26,800,000 2, 3 Bankers Trust New York
Corp., 5.030%, 8/9/1999 26,800,000
1,435,000 BeMacs Service, Inc.,
(SouthTrust Bank of
Alabama, Birmingham LOC),
5.100%, 6/3/1999 1,435,000
2,910,000 Blackwell Investments,
Inc., (Bank One, Louisiana
LOC), 5.090%, 6/3/1999 2,910,000
1,685,000 Boozer Lumber Co.,
(SouthTrust Bank of
Alabama, Birmingham LOC),
5.100%, 6/4/1999 1,685,000
4,950,000 Cloquet, MN, Series 1996-B
Potlach Corp, (Credit
Suisse First Boston LOC),
5.050%, 6/2/1999 4,950,000
1,375,000 Denver Urban Renewal
Authority, (Series 1992-
B), (Paribas, Paris LOC),
5.020%, 6/3/1999 1,375,000
5,550,000 Dewberry III, L.P., (FMB
Bank LOC), 4.980%,
6/1/1999 5,550,000
1,385,000 Edgefield County, SC,
Series 1997 (Bondex Inc
Project), (HSBC Bank USA
LOC), 5.042%, 6/3/1999 1,385,000
2,360,000 Gahanna OH, City of,
Franklin Steel Co.
Project, (Star Bank, N.A.,
Cincinnati LOC), 4.900%,
6/3/1999 2,360,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
NOTES - VARIABLE-continued
4
BANKING-CONTINUED
$ 3,000,000 Gervais Street Associates,
(Series 1998), (Wachovia
Bank of NC, N.A., Winston-
Salem LOC), 4.970%,
6/2/1999 $ 3,000,000
3,500,000 Great Southern Wood
Preserving Co.,
(SouthTrust Bank of
Alabama, Birmingham LOC),
5.100%, 6/4/1999 3,500,000
4,000,000 Grob Systems, Inc.,
(Series 1998 & 1999),
(Fifth Third Bank,
Cincinnati LOC), 4.920%,
6/3/1999 4,000,000
10,355,000 HJH Associates of Alabama,
Hilton Hotel, Huntsville,
(SouthTrust Bank of
Alabama, Birmingham LOC),
5.100%, 6/4/1999 10,355,000
8,155,000 HSI Funding, LLC, Variable
Rate (Series A), (National
City Bank,
Michigan/Illinois LOC),
4.900%, 6/3/1999 8,155,000
1,990,000 La-Man Corp., (SouthTrust
Bank of Alabama,
Birmingham LOC), 5.100%,
6/4/1999 1,990,000
2,290,000 Lake Sherwood Senior
Living Center, LLC, (Union
Planters NB, Memphis, TN
LOC), 5.290%, 6/3/1999 2,290,000
50,125,483 2, 3 Liquid Asset Backed
Securities Trust, Series
1996-3, (Westdeutsche
Landesbank Girozentrale
Swap Agreement), 4.922%,
6/15/1999 50,125,483
32,401,718 2, 3 Liquid Asset Backed
Securities Trust, Series
1997-1, (Westdeutsche
Landesbank Girozentrale
Swap Agreement), 4.902%,
6/15/1999 32,401,718
3,350,000 Maryland State IDFA,
(Genetic Therapy, Inc.),
(FMB Bank LOC), 5.010%,
6/14/1999 3,350,000
5,500,000 Maryland State IDFA,
(Kelly Springfield Tire),
(FMB Bank LOC), 4.950%,
6/28/1999 5,500,000
2,026,000 Maryland State IDFA, Human
Genome, Series 1994, (FMB
Bank LOC), 4.900%,
6/28/1999 2,026,000
4,217,500 Memphis, TN Center City
Revenue Finance Corp.,
South Bluffs Project
(Series 1998-B), (National
Bank of Commerce, Memphis,
TN LOC), 5.060%, 6/3/1999 4,217,500
9,000,000 Mississippi Business
Finance Corp., Howard
Industries, Inc. Series
1997, (First American
National Bank, Nashville,
TN LOC), 5.193%, 6/3/1999 9,000,000
570,000 New Jersey EDA, Series 1992
K-3, (Banque Nationale de
Paris LOC), 5.160%,
6/28/1999 570,000
3,605,000 New Jersey EDA, Series
1992-H, (Banque Nationale
de Paris LOC), 5.040%,
6/28/1999 3,605,000
7,150,000 O'Dovero Consolidated,
LLC, (Series 1998-A),
(National City Bank,
Michigan/Illinois LOC),
4.900%, 6/3/1999 7,150,000
5,500,000 Pennsylvania EDFA, (Series
1993-C), (Barclays Bank
PLC, London LOC), 4.940%,
6/2/1999 5,500,000
14,449,893 2, 3 Rabobank Optional Redemption Trust, Series 1997-101,
5.000%,
7/20/1999 14,449,893
1,600,000 Saegertown Manufacturing
Corp., (PNC Bank, N.A.
LOC), 4.914%, 6/28/1999 1,600,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
NOTES - VARIABLE-continued
4
BANKING-CONTINUED
$ 4,200,000 Smith Garden Products,
Inc., (SouthTrust Bank of
Alabama, Birmingham LOC),
5.100%, 6/4/1999 $ 4,200,000
21,000,000 Societe Generale, Paris,
4.952%, 8/11/1999 20,997,309
4,515,000 Sojourn Project, Series
1997, (FirstMerit Bank,
N.A. LOC), 5.010%,
6/3/1999 4,515,000
5,225,000 Sun Valley, Inc.,
(SouthTrust Bank of
Georgia, Atlanta LOC),
5.100%, 6/4/1999 5,225,000
3,545,000 2 Toledo Medical Building I
LP, (Huntington National
Bank, Columbus, OH LOC),
5.180%, 11/1/1999 3,545,000
18,675,000 Union Development Co.,
(Bank of America NT and SA,
San Francisco LOC),
4.940%, 6/3/1999 18,675,000
2,375,000 United Jewish Federation
of Greater Pittsburgh
VRDB, Series 1995A, (PNC
Bank, N.A. LOC), 5.000%,
6/3/1999 2,375,000
6,140,000 Van Dyne Crotty Co.,
(Huntington National Bank,
Columbus, OH LOC), 4.990%,
6/3/1999 6,140,000
4,760,000 Visalia, CA Community
Redevelopment Agency, East
Visalia Redevelopment
Project (Series 1990),
(Union Bank of California
LOC), 5.120%, 6/3/1999 4,760,000
5,230,000 Woodbury Business Forms,
Inc./Carribean Business
Forms, Series 1996 Taxable
Revenue Bonds, (Columbus
Bank and Trust Co., GA
LOC), 5.160%, 6/3/1999 5,230,000
TOTAL 331,807,791
FINANCE - AUTOMOTIVE-2.1%
100,000,000 General Motors Acceptance
Corp., Mortgage of PA,
(Guaranteed by General
Motors Acceptance Corp.),
5.010%, 7/1/1999 99,587,721
FINANCE - EQUIPMENT-0.6%
30,000,000 Comdisco, Inc., Notes,
5.186%, 8/26/1999 30,000,000
FINANCE - RETAIL-0.9%
31,000,000 AFS Insurance Premium
Receivables Trust, (Series
1994-A), 5.482%, 6/15/1999 31,000,000
11,900,000 2 Bishop's Gate Residential
Mortgage Trust 1998-2,
Class A-1, 5.139%,
6/10/1999 11,900,000
TOTAL 42,900,000
INSURANCE-11.9%
40,500,000 First Allmerica Financial
Life Insurance Co.,
5.110%, 8/3/1999 40,500,000
25,000,000 GE Life and Annuity
Assurance Co., 5.110%,
9/1/1999 25,000,000
172,000,000 General American Life
Insurance Co., 5.120%,
6/21/1999 172,000,000
25,000,000 Jackson National Life
Insurance Co., 5.160%,
7/1/1999 25,000,000
33,000,000 Jackson National Life
Insurance Co., 5.020%,
6/22/1999 33,000,000
26,000,000 Jackson National Life
Insurance Co., 5.170%,
7/22/1999 26,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
NOTES - VARIABLE-continued
4
INSURANCE-CONTINUED
$ 31,418,796 2, 3 Liquid Asset Backed
Securities Trust, Series
1997-3 Senior Notes,
(Guaranteed by AMBAC
Financial Group, Inc.),
4.970%, 6/28/1999 $ 31,418,796
21,379,288 2, 3 Liquid Asset Backed
Securities Trust, Sr.
Notes (Series 1998-1),
(Guaranteed by AMBAC
Financial Group, Inc.),
4.921%, 6/26/1999 21,379,288
40,000,000 Principal Life Insurance
Co., 5.170%, 6/1/1999 40,000,000
23,000,000 Protective Life Insurance
Co., 5.145%, 8/2/1999 23,000,000
50,000,000 Security Life of Denver
Insurance Co., 5.056%,
7/1/1999 50,000,000
15,000,000 SunAmerica Life Insurance
Co., 4.999%, 6/1/1999 15,000,000
25,000,000 SunAmerica Life Insurance
Co., 4.999%, 6/1/1999 25,000,000
20,000,000 Transamerica Life
Insurance and Annuity Co.,
5.090%, 7/1/1999 20,000,000
15,000,000 Transamerica Occidental
Life Insurance Co.,
5.520%, 6/6/1999 15,000,000
TOTAL 562,298,084
TOTAL NOTES - VARIABLE 1,066,593,596
REPURCHASE AGREEMENTS-
13.4% 5
100,000,000 ABN AMRO, Inc., 4.910%,
dated 5/28/1999, due
6/1/1999 100,000,000
75,000,000 Morgan Stanley Group,
Inc., 4.890%, dated
5/28/1999, due 6/1/1999 75,000,000
296,300,000 Nationsbanc Montgomery
Securities, Inc., 4.900%,
dated 5/28/1999, due
6/1/1999 296,300,000
50,000,000 Paribas Corp., 4.900%,
dated 5/28/1999, due
6/1/1999 50,000,000
75,000,000 Salomon Brothers, Inc.,
4.900%, dated 5/28/1999,
due 6/1/1999 75,000,000
19,100,000 Societe Generale
Securities Corp., 4.800%,
dated 5/28/1999, due
6/1/1999 19,100,000
20,000,000 Toronto Dominion
Securities (USA), Inc.,
4.820%, dated 5/28/1999,
due 6/1/1999 20,000,000
TOTAL REPURCHASE
AGREEMENTS 635,400,000
TIME DEPOSIT-5.3%
BANKING-5.3%
150,000,000 Bank of Tokyo-Mitsubishi
Ltd., 4.938%, 6/1/1999 150,000,000
75,000,000 Royal Bank of Canada,
Montreal, 4.938%, 6/1/1999 75,000,000
25,000,000 Westdeutsche Landesbank
Girozentrale, 4.938%,
6/1/1999 25,000,000
TOTAL TIME DEPOSITS 250,000,000
TOTAL INVESTMENTS AT
AMORTIZED COST 6 $ 4,800,408,640
</TABLE>
1 Each issue shows the rate of discount at the time of purchase for discount
issues, or the coupon for interest bearing issues.
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. At May 31, 1999, these securities amounted to
$192,020,178 which represents 4.06% of net assets. Included in these amounts,
securities which have been deemed liquid amounted to $176,575,178 which
represents 3.73% of net assets.
3 Denotes a restricted security that has been deemed liquid by criteria approved
by the Fund's Board of Directors.
4 Current rate and next reset date shown.
5 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.
6 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($4,728,448,366) at May 31, 1999.
The following acronyms are used throughout this portfolio:
AMBAC -American Municipal Bond Assurance Corporation EDA -Economic Development
Authority EDFA -Economic Development Financing Authority FSA -Financial Security
Assurance IDFA -Industrial Development Finance Authority INS -Insured LLC
- -Limited Liability Corporation LOC -Letter of Credit LP -Limited Partnership
MBIA -Municipal Bond Investors Assurance PLC -Public Limited Company SA -Support
Agreement VRDB -Variable Rate Demand Bond
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase
agreements $ 635,400,000
Investments in securities 4,165,008,640
Total investments in
securities, at amortized
cost and value $ 4,800,408,640
Cash 718,794
Income receivable 15,171,433
Receivable for shares sold 15,884,951
TOTAL ASSETS 4,832,183,818
LIABILITIES:
Payable for investments
purchased 49,000,000
Payable for shares
redeemed 47,607,607
Income distribution
payable 4,621,811
Accrued expenses 2,506,034
TOTAL LIABILITIES 103,735,452
Net assets for
4,728,448,366 shares
outstanding $ 4,728,448,366
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$4,728,448,366 /
4,728,448,366 shares
outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 226,154,847
EXPENSES:
Investment advisory fee $ 21,092,710
Administrative personnel
and services fee 3,180,781
Custodian fees 317,827
Transfer and dividend
disbursing agent fees and
expenses 7,500,714
Directors'/Trustees' fees 27,519
Auditing fees 13,610
Legal fees 28,497
Portfolio accounting fees 158,640
Distribution services fee 4,218,542
Shareholder services fee 10,546,355
Share registration costs 297,814
Printing and postage 957,829
Insurance premiums 481,768
Taxes 297,400
Miscellaneous 21,757
TOTAL EXPENSES 49,141,763
WAIVERS:
Waiver of investment
advisory fee (6,770,584)
Net expenses 42,371,179
Net investment income $ 183,783,668
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income $ 183,783,668 $ 148,596,429
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (183,783,668) (148,596,429)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 14,914,745,750 12,363,460,681
Net asset value of shares
issued to shareholders in
payment of distributions
declared 177,005,053 144,001,210
Cost of shares redeemed (14,111,336,402) (11,122,809,806)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 980,414,401 1,384,652,085
Change in net assets 980,414,401 1,384,652,085
NET ASSETS:
Beginning of period 3,748,033,965 2,363,381,880
End of period $ 4,728,448,366 $ 3,748,033,965
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.05 0.05 0.05 0.05
LESS DISTRIBUTIONS:
Distributions from net investment income (0.04) (0.05) (0.05) (0.05) (0.05)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 4.46% 4.83 % 4.64 % 4.90 % 4.60 %
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 1.16% 1.18 % 1.19 % 1.37 % 1.19 %
Net investment income 2 4.20% 4.55 % 4.35 % 4.40 % 4.37 %
Expenses (after waivers) 1.00% 1.00 % 0.99 % 0.99 % 0.99 %
Net investment income (after waivers) 4.36% 4.73 % 4.55 % 4.78 % 4.57 %
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $4,728,448 $3,748,034 $2,363,382 $1,539,235 $1,027,083
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
YEAR ENDED MAY 31, 1999
ORGANIZATION
Cash Trust Series, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act") as an open-end, management
investment company. The Corporation consists of four portfolios. The financial
statements included herein are only those of Prime Cash Series (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held. The investment objective of the Fund
is current income consistent with stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Fund 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 Fund 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 Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund 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 Fund'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 Fund may engage in when-issued or delayed delivery transactions. The Fund
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.
In some cases, the issuer of restricted securities has agreed to register such
securities for resale, at the issuer's expense, either upon demand by the Fund
or in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Directors. The Fund will not incur any
registration costs upon such resales. The Fund's restricted securities are
valued at the price provided by dealers in the secondary market or, if no market
prices are available, at the fair value as determined by the Fund's pricing
committee.
Additional information on each restricted security held at May 31, 1999 is as
follows:
<TABLE>
<CAPTION>
SECURITY ACQUISITION DATE ACQUISITION COST
<S> <C> <C>
Bishop's Gate Residential
Mortgage Trust 1998-2
Class A-1, 5.139%
6/10/1999 12/11/1998 $ 11,900,000
Liquid Asset Backed
Securities Trust, Series
1996-3, 4.922%, 6/15/1999 8/15/1996 51,000,000
Liquid Asset Backed
Securities Trust, Series
1997-1, 4.902%, 6/15/1999 6/27/1997 28,370,200
Rabobank Optional
Redemption Trust, Series
1997-101, 5.000%,
7/20/1999 4/17/1997 13,288,662
Toledo Medical Bldg. LP,
5.180%, 11/1/1999 5/22/1997 3,545,000
</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.
CAPITAL STOCK
At May 31, 1999, there were 12,500,000,000 shares ($0.001 par value per share)
authorized. At May 31, 1999, capital paid-in aggregated $4,728,448,366.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
Shares sold 14,914,745,750 12,363,460,681
Shares issued to
shareholders in payment of
distributions declared 177,005,053 144,001,210
Shares redeemed (14,111,336,402) (11,122,809,806)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 980,414,401 1,384,652,085
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.50% of the Fund's average daily net assets. The Adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund 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, Inc. 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.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp., the principal distributor, from the net assets of the Fund to
finance activities intended to result in the sale of the Fund's Fund shares. The
Plan provides that the Fund may incur distribution expenses up to 0.35% of the
average daily net assets of the Fund shares, annually, to reimburse FSC.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. 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 Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS OF
CASH TRUST SERIES, INC. AND SHAREHOLDERS OF
PRIME CASH SERIES:
We have audited the accompanying statement of assets and liabilities of Prime
Cash Series (a portfolio of Cash Trust Series, Inc.), including the portfolio of
investments, as of May 31, 1999, and the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended May
31, 1999 and 1998, and the financial highlights for the years presented. These
financial statements and financial highlights are the responsibility of the
Fund'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 May
31, 1999, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Prime
Cash Series as of May 31, 1999, the results of its operations for the year then
ended, the changes in its net assets for the years ended May 31, 1999 and 1998,
and the financial highlights for the years presented in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 12, 1999
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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 mutual funds involves investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
[Graphic]
Federated
World-Class Investment Manager
ANNUAL REPORT
Prime Cash Series
ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1999
[Graphic]
Federated
Prime Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 147551105
0062904 (7/99)
[Graphic]
ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report to Shareholders for Treasury Cash
Series, a portfolio of Cash Trust Series, Inc., which covers the 12-month period
from June 1, 1998 through May 31, 1999. The report begins with a commentary by
the fund's portfolio manager, followed by a complete listing of the fund's
investments on the last day of the reporting period and its financial
statements.
Treasury Cash Series is a highly conservative way to help your ready cash pursue
daily income while offering you the advantages of daily liquidity and stability
of principal. 1 The fund invests in some of the safest investments
available-short-term U.S. Treasury obligations or repurchase agreements backed
by these obligations.
Dividends paid to shareholders during the reporting period totaled $0.04 per
share. On May 31, 1999, the fund's net assets reached $969.6 million.
As always, we thank you for keeping your ready cash working through Treasury
Cash Series. Please contact your investment representative if you have any
questions. We look forward to keeping you up to date on your investment.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
1 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Investment Review
Treasury Cash Series is permitted to invest in obligations of the
U.S. Treasury, either in the form of notes and bills or as collateral for
repurchase agreements. The fund is rated AAAm by Standard & Poor's ("S&P")
and Aaa by Moody's Investors Services, Inc. ("Moody's"). 1
The reporting period was characterized by dramatic shifts in market sentiment
and expectations regarding the path of monetary policy. Early in the reporting
period, economic fundamentals drove movements in short-term interest rates. With
economic growth strong and inflation benign, market participants were convinced
that the Federal Reserve Board (the "Fed") would remain on the sidelines, in
spite of the tightening bias that it had adopted at the March 1998 Federal Open
Market Committee meeting.
By the third quarter of 1998, however, uncertainty in the world economies
introduced vulnerability into the domestic equity market, and led to a
substantial flight-to-quality to U.S. Treasury securities across the yield
curve. Economic trouble spread from Asia to Russia and Latin America. What had
been perceived to have been a fairly modest drag on the U.S. economy as a result
of the remote Asian crisis became an overpowering influence on the market and
expectations regarding future U.S. growth. By August, the Fed had abandoned its
tightening bias, and by late September had taken what was to be the first of
three 25 basis point monetary policy easings in an attempt to calm the financial
markets and relieve the credit and liquidity constraints that were evident.
While this first move had little effect on lessening investors fears, the
subsequent steps-an intermeeting move in mid-October and another in
mid-November-that brought the federal funds target rate down to its current
4.75% level had the desired result.
In the midst of this turmoil, however strong, consumer demand continued to
stimulate the economy. After posting a 6.00% pace of growth in the fourth
quarter of 1998, the economy entered the new year with considerable strength.
Although growth in the first quarter slowed modestly to around 4.00%, this pace
still was well above what has traditionally been viewed as being the
non-inflationary potential. Nonetheless, signs of inflation remained remarkably
absent. By the end of the reporting period, however, lingering concern over the
health of the global economies had been replaced by apprehension that the Fed
might be forced to tighten monetary policy in order to ward off future
inflationary pressures.
1 An AAAm rating is obtained after S&P evaluates a number of factors, including
credit quality, market price exposure, and management. S&P monitors the
portfolio weekly for developments that could cause changes in the ratings. Money
market funds and bond funds rated Aaa by Moody's are judged to be of an
investment quality similar to Aaa-rated, fixed income obligations, that is, they
are judged to be of the best quality. These ratings do not remove market risks
and are subject to change.
Movements in short-term interest rates reflected the shifting sentiment over the
annual reporting period. The yield on the three-month Treasury bill ("T-bill")
traded between 5.00% and 5.20% from June 1998 to mid- August. It then plummeted
to a low of 3.60% at the height of the liquidity crisis in mid-October, as
investors seeking a safe haven flooded the U.S. Treasury market. As the easing
steps taken by the Fed calmed the waters, the yield on this security rebounded
to trade around 4.45% at the beginning of 1999. The movements in interest rates
for very short-term Treasury securities were influenced by technical factors
over the reporting period as well. The Treasury Department's use of short-term
cash management bills to meet temporary shortfalls in the Treasury's cash
balances introduced additional volatility into this segment of the Treasury
market. This was particularly evident in the first quarter of 1999, when the
Treasury issued over $100 billion of cash management bills to provide interim
financing until tax receipts were collected in April. As a result of this influx
in supply, the three-month T-bill rose to almost 4.70% in late February, and
then declined to 4.30% in April when these securities matured, then rebounded to
4.60% by the close of the reporting period in May.
Early in the reporting period, we targeted the Fund's average maturity within a
35 to 45-day average maturity target range, moving within that range according
to relative value opportunities. As the flood of investors to the Treasury
market in the bottom half of the year drove yields sharply, the fund's average
maturity drifted below that range as repurchase agreements offered substantially
more attractive yields. In the first quarter of 1999, as the Fed's easing steps
took hold and the market turbulence subsided, we moved the fund's average
maturity target range to a 40 to 50-day range. In late February, as the robust
pace of growth of the economy ignited fears of a near-term tightening in
monetary policy by the Fed, we extended the average maturity of the portfolio to
the upper end of that target range. Since that time, the fund's average maturity
has drifted lower as legitimate evidence has mounted that the Fed may indeed
tighten monetary policy at the end of June in a preemptive move against
inflationary pressures.
Portfolio of Investments
MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM U.S. TREASURY
OBLIGATIONS-20.7%
U.S. TREASURY BILLS-0.3% 1
$ 3,000,000 4.470%, 3/30/2000 $ 2,887,133
U.S. TREASURY NOTES-20.4%
196,100,000 5.375% - 7.750%, 6/30/1999
- 5/31/2000 197,346,242
TOTAL SHORT-TERM
U.S. TREASURY OBLIGATIONS 200,233,375
REPURCHASE AGREEMENTS-
79.3% 2
45,000,000 ABN AMRO, Inc., 4.820%,
dated 5/28/1999, due
6/1/1999 45,000,000
45,000,000 Banc One Capital Markets,
4.800%, dated 5/28/1999,
due 6/1/1999 45,000,000
45,000,000 Barclays de Zoete Wedd
Securities, Inc., 4.800%,
dated 5/28/1999, due
6/1/1999 45,000,000
45,000,000 Bear, Stearns and Co.,
4.830%, dated 5/28/1999,
due 6/1/1999 45,000,000
45,000,000 CIBC Wood Gundy Securities
Corp., 4.780%, dated
5/28/1999, due 6/1/1999 45,000,000
45,000,000 CIBC Wood Gundy Securities
Corp., 4.810%, dated
5/28/1999, due 6/1/1999 45,000,000
36,000,000 3 Credit Suisse First
Boston, Inc., 4.720%,
dated 4/8/1999, due
6/7/1999 36,000,000
9,000,000 3 Credit Suisse First
Boston, Inc., 4.780%,
dated 3/3/1999, due
6/1/1999 9,000,000
26,000,000 3 Deutsche Bank Government
Securities, Inc., 4.770%,
dated 5/18/1999,
due 6/30/1999 26,000,000
8,300,000 Deutsche Bank Government
Securities, Inc., 4.820%,
dated 5/28/1999,
due 6/1/1999 8,300,000
45,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
4.800%, dated 5/28/1999,
due 6/1/1999 45,000,000
45,000,000 Lehman Brothers, Inc.,
4.800%, dated 5/28/1999,
due 6/1/1999 45,000,000
25,000,000 3 Merrill Lynch Government
Securities, 4.760%, dated
5/12/1999, due 8/10/1999 25,000,000
45,000,000 Morgan Stanley Group,
Inc., 4.820%, dated
5/28/1999, due 6/1/1999 45,000,000
45,000,000 Salomon Brothers, Inc.,
4.800%, dated 5/28/1999,
due 6/1/1999 45,000,000
45,000,000 Societe Generale
Securities Corp., 4.800%,
dated 5/28/1999, due
6/1/1999 45,000,000
45,000,000 Toronto Dominion
Securities (USA) Inc.,
4.820%, dated 5/28/1999,
due 6/1/1999 45,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-
continued
$ 35,000,000 3 Warburg Dillon Reed LLC,
4.730%, dated 4/30/1999,
due 7/29/1999 $ 35,000,000
45,000,000 Warburg Dillon Reed LLC,
4.800%, dated 5/28/1999,
due 6/1/1999 45,000,000
45,000,000 Westdeutsche Landesbank
Girozentrale, 4.800%,
dated 5/28/1999, due
6/1/1999 45,000,000
TOTAL REPURCHASE
AGREEMENTS 769,300,000
TOTAL INVESTMENTS (AT
AMORTIZED COST) 4 $ 969,533,375
</TABLE>
1 The issue shows the rate of discount at time of purchase.
2 The repurchase agreements are fully collateralized by U.S. Treasury
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.
3 Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days.
4 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($969,592,191) at May 31, 1999.
The following acronym is used throughout this portfolio:
LLC -Limited Liability Corporation
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase
agreements $ 769,300,000
Investments in securities 200,233,375
Total investments in
securities, at amortized
cost and value $ 969,533,375
Income receivable 3,877,786
Receivable for shares sold 700,824
TOTAL ASSETS 974,111,985
LIABILITIES:
Payable for investments
purchased 400,000
Payable for shares
redeemed 1,212,661
Income distribution
payable 859,803
Payable to Bank 1,585,343
Accrued expenses 461,987
TOTAL LIABILITIES 4,519,794
Net assets for 969,592,191
shares outstanding $ 969,592,191
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$969,592,191 / 969,592,191
shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 49,334,146
EXPENSES:
Investment advisory fee $ 4,821,924
Administrative personnel
and services fee 727,146
Custodian fees 89,810
Transfer and dividend
disbursing agent fees and
expenses 814,918
Directors'/Trustees' fees 9,704
Auditing fees 13,050
Legal fees 6,426
Portfolio accounting fees 124,114
Distribution services fee 964,385
Shareholder services fee 2,410,962
Share registration costs 86,732
Printing and postage 240,599
Insurance premiums 3,141
Taxes 72,391
Miscellaneous 11,457
TOTAL EXPENSES 10,396,759
WAIVER:
Waiver of investment
advisory fee (710,477)
Net expenses 9,686,282
Net investment income $ 39,647,864
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 39,647,864 $ 38,047,314
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (39,647,864) (38,047,314)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 3,989,765,831 3,586,341,688
Net asset value of shares
issued to shareholders in
payment of
distributions declared 35,074,368 33,442,587
Cost of shares redeemed (3,876,732,235) (3,569,463,870)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 148,107,964 50,320,405
Change in net assets 148,107,964 50,320,405
NET ASSETS:
Beginning of period 821,484,227 771,163,822
End of period $ 969,592,191 $ 821,484,227
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.05 0.04 0.05 0.04
LESS DISTRIBUTIONS:
Distributions from net investment income (0.04) (0.05) (0.04) (0.05) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 4.21% 4.70% 4.50% 4.83% 4.34%
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 1.07% 1.06% 1.02% 1.28% 1.07%
Net investment income 2 4.04% 4.55% 4.38% 4.41% 4.18%
Expenses (after waivers) 1.00% 1.00% 0.99% 0.99% 0.99%
Net investment income (after waivers) 4.11% 4.60% 4.41% 4.70% 4.26%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $969,592 $821,484 $771,164 $593,730 $424,091
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived. If such voluntary
waivers had not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
YEAR ENDED MAY 31, 1999
ORGANIZATION
Cash Trust Series, Inc. (the "Corporation") is registered under the Investment
Company Act of 1940, as amended (the "Act"), as an open-end, management
investment company. The Corporation consists of four portfolios. The financial
statements included herein are only those of Treasury Cash Series (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held. The investment objective of the Fund
is current income consistent with stability of principal and liquidity.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Fund uses the amortized cost method to value its portfolio securities in
accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Fund 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 Fund 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 Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Directors (the "Directors").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund 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 Fund'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 Fund may engage in when-issued or delayed delivery transactions. The Fund
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.
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.
CAPITAL STOCK
At May 31, 1999, there was 12,500,000,000 shares ($0.001 par value per share)
authorized. At May 31, 1999, capital
paid-in aggregated $969,592,191. Transactions in capital stock were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
Shares sold 3,989,765,831 3,586,341,688
Shares issued to
shareholders in payment of
distributions declared 35,074,368 33,442,587
Shares redeemed (3,876,732,235) (3,569,463,870)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 148,107,964 50,320,405
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
0.50% of the Fund's average daily net assets. The adviser may voluntarily choose
to waive any portion of its fee. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Fund 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, Inc. 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.
DISTRIBUTION SERVICES FEE
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b- 1
under the Act. Under the terms of the Plan, the Fund will reimburse Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's shares.
The Plan provides that the Fund may incur distribution expenses up to 0.35% of
the average daily net assets of the Fund shares, annually, to compensate FSC.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Fund. 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 Fund's accounting records for which it receives a fee. The
fee is based on the level of the Fund's average daily net assets for the period,
plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
Independent Auditors' Report
TO THE BOARD OF DIRECTORS OF CASH TRUST SERIES, INC.
AND SHAREHOLDERS OF TREASURY CASH SERIES:
We have audited the accompanying statement of assets and liabilities of Treasury
Cash Series (a portfolio of Cash Series Trust, Inc.), including the portfolio of
investments, as of May 31, 1999, and the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended May
31, 1999 and 1998, and the financial highlights for the years presented. These
financial statements and financial highlights are the responsibility of the
Fund'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 May 31,
1999, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Treasury Cash Series as of May 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for the years ended May 31, 1999
and 1998, and the financial highlights for the years presented, in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 12, 1999
Directors
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
CHARLES F. MANSFIELD, JR.
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
JOHN S. WALSH
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not 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 mutual funds involves investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
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Federated
World-Class Investment Manager
ANNUAL REPORT
Treasury Cash Series
ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1999
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Federated
Treasury Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 147551402
2062301 (7/99)
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