PROSPECTUS
Government Cash Series
A Portfolio of Cash Trust Series, Inc.
A money market mutual fund seeking current income consistent with stability of
principal and liquidity by investing primarily in a portfolio of U.S. Treasury
and government agency securities maturing in 397 days or less.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
SEPTEMBER 30, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the
Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 5
How is the Fund Sold? 5
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Last Meeting of Shareholders 11
Financial Information 12
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund that seeks to maintain a stable net asset value
of $1.00 per share. The Fund's investment objective is current income consistent
with stability of principal and liquidity. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in a portfolio of U.S. Treasury and government agency
securities maturing in 397 days or less. These investments include repurchase
agreements collateralized fully by U.S. Treasury and government agency
securities. The dollar-weighted average maturity of the Fund's portfolio will be
90 days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, even though the Fund is a
money market fund that seeks to maintain a stable net asset value, it is
possible to lose money by investing in the Fund. The Shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency.
RISK/RETURN BAR CHART AND TABLE
[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Government Cash Series as of the calendar year-end
for each of nine years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2% up to 8%
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended1998 The light gray shaded chart features nine distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1990 through1998. The
percentages noted are: 7.62%, 5.33%, 3.01%, 2.34%, 3.38%, 5.09%, 4.53%, 4.68%
and 4.59 respectively.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 1.97%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.90% (quarter ended March 31, 1990). Its lowest quarterly return was 0.57%
(quarter ended June 30, 1993).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 4.59%
5 Years 4.45%
Start of Performance 1 4.67%
</TABLE>
1 The Fund's start of performance date was August 15, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 4.09%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
GOVERNMENT CASH SERIES
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
as applicable) None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions) (as a
percentage of offering
price) . None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waiver and Reduction) 1 Expenses That are
Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee 3 0.35%
Shareholder Services Fee 0.25%
Other Expenses 0.27%
Total Annual Fund
Operating Expenses 1.37%
1 Although not contractually obligated to do so, the adviser waived certain
amounts and the distributor elected not to accrue a portion of its distribution
(12b-1) fee. These waivers and reductions to the maximum fees are shown below
along with the net expenses the Fund actually paid for the fiscal year ended May
31, 1999.
Total Waivers and
Reductions of Fund
Expenses 0.37%
Total Actual Annual Fund
Operating Expenses (after
waivers and reductions) 1.00%
2 The adviser voluntarily waived a portion of the management fee during the fiscal
year ended May 31, 1999. The adviser can terminate this voluntary waiver at any
time. The management fee paid by the Fund's Shares (after the voluntary waiver)
was 0.38% for the year ended May 31, 1999.
3 The distributor voluntarily elected not to accrue a portion of its distribution
(12b-1) fee during the fiscal year ended May 31, 1999. The distributor can
terminate this voluntary reduction at any time. The distribution (12b-1) fee paid
by the Fund's Shares (after the voluntary reduction) was 0.10% for the year ended
May 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Shares' operating expenses are BEFORE WAIVERS AND REDUCTIONS
as shown in the Table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C>
1 Year $ 139
3 Years $ 434
5 Years $ 750
10 Years $ 1,646
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests at least 65% of its total assets in a portfolio of U.S.
Treasury and government agency securities maturing in 397 days or less. These
investments include repurchase agreements collateralized fully by U.S. Treasury
and government agency securities. The dollar-weighted average maturity of the
Fund's portfolio will be 90 days or less.
The Fund's investment adviser (Adviser) targets a dollar-weighted average
portfolio maturity range based upon its interest rate outlook. The Adviser
formulates its interest rate outlook by analyzing a variety of factors, such as:
* current U.S. economic activity and the economic outlook;
* current short-term interest rates;
* the Federal Reserve Board's policies regarding short-term interest
rates; and
* the potential effects of foreign economic activity on U.S. short-term
interest rates.
The Adviser generally shortens the portfolio's dollar-weighted average maturity
when it expects interest rates to rise and extends the maturity when it expects
interest rates to fall. The Adviser selects securities used to shorten or extend
the portfolio's dollar-weighted average maturity by comparing the returns
currently offered by different investments to their historical and expected
returns.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. The Fund
invests in the following types of fixed income securities.
U.S. TREASURY SECURITIES
U.S. Treasury securities are direct obligations of the federal government
of the United States.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser. Repurchase agreements are subject
to credit risks.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. The Fund attempts to stabilize the net asset value (NAV) of its Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
Fund cannot guarantee that its NAV will always remain at $1.00 per Share. The
Fund does not charge a front-end sales charge. NAV is determined at 12:00 noon
and 3:00 p.m. (Eastern time) and as of the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. The required
minimum subsequent investment amount is $500. The minimum initial and subsequent
investment amounts for retirement plans are $250 and $100, respectively.
An institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions such as banks,
fiduciaries, custodians of public funds, investment advisers and broker/dealers
or individuals, directly or through investment professionals.
When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time), your redemption will be wired to you
the following business day. You will receive that day's dividend. Under limited
circumstances, arrangements may be made with the Distributor for same-day
payment of redemption proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will continue to
receive the daily dividend declared on the Shares being redeemed until the check
is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares. There is
an annual fee for this service that the Fund will automatically deduct from your
account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non- retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or may experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Last Meeting of Shareholders
The Annual Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholder voting at the meeting, there were
569,449,188 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
WITHHELD
AUTHORITY
FOR TO VOTE
John F. Cunningham 391,833,695 7,602,095
Charles F. Mansfield, Jr. 391,893,194 7,542,596
John S. Walsh 391,893,194 7,542,596
1 The following Directors continued their terms as Directors of the
Company: John F. Donahue, Thomas G. Bigley, John T. Conroy, Jr., Nicholas
Constantakis, Lawrence D. Ellis, M.D., Peter E. Madden, John E. Murray,
Jr., J.D., S.J.D., Majorie P. Smuts, and J. Christopher Donahue.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the Company's independent
auditors:
FOR AGAINST ABSTENTIONS
393,673,648 1,918,165 3,843,977
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(a) To amend the Fund's fundamental investment policy on diversification of its
investments.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
291,983,396 12,529,883 45,555,349 49,367,162
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
288,906,812 15,237,932 45,555,349 49,735,697
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
290,710,542 13,827,306 45,555,350 49,342,592
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
288,026,517 16,318,226 45,555,349 49,535,698
(e) To amend the Fund's fundamental investment policy regarding underwriting
securities.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
289,810,861 14,327,034 45,555,349 49,742,546
(f) To amend the Fund's fundamental investment policy regarding lending assets.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
287,550,681 16,466,974 45,555,349 49,862,786
(g) To amend the Fund's fundamental investment policy regarding concentration
of the Fund's investments in the securities of companies in the same industry.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
287,757,875 16,318,789 45,555,349 49,803,777
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
283,495,126 20,303,454 45,555,349 50,081,861
(i) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets.
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
283,078,524 20,513,771 45,555,349 50,288,146
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
285,483,518 18,590,593 45,555,349 49,806,330
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
286,836,585 16,827,552 45,555,349 50,216,304
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
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.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Government Cash Series
A Portfolio of Cash Trust Series, Inc.
SEPTEMBER 30, 1999
A Statement of Additional Information (SAI), dated September 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion & Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, the Semi-Annual
Report and other information without charge, and make inquiries, call your
investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
World-Class Investment Manager
Prospectus
Government Cash Series
A Portfolio of Cash Trust Series, Inc.
September 30, 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
Investment Company Act File No. 811-5843
Cusip 147551204
9080103A (9/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Government Cash Series
A Portfolio of Cash Trust Series, Inc.
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Government Cash Series (Fund), dated
September 30, 1999. This SAI incorporates by reference the Fund's Annual Report.
Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.
SEPTEMBER 30, 1999
[Graphic]
Federated
World-Class Investment Manager
Government Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
9080103B (9/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
How is the Fund Sold? 4
Subaccounting Services 5
Redemption in Kind 5
Account and Share Information 5
Tax Information 5
Who Manages and Provides Services to the Fund? 6
How Does the Fund Measure Performance? 9
Who is Federated Investors, Inc.? 10
Financial Information 11
Addresses 12
How is the Fund Organized?
The Fund is a diversified portfolio of Cash Trust Series, Inc. (Corporation).
The Corporation, an open-end, management investment company, was originally
organized as a Massachusetts business trust under the laws of the Commonwealth
of Massachusetts on May 16, 1989. It was reorganized under the laws of the State
of Maryland on February 1, 1993. The Corporation may offer separate series of
shares representing interests in separate portfolios of securities.
The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in such
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate and credit risks of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. Treasury strips are the most
common form of stripped zero coupon security. In addition, some securities give
the issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are referred
to as pay-in-kind or PIK securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
ASSET COVERAGE
In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations without
entering into an offsetting transaction or terminating the special transaction.
This may cause the Fund to miss favorable trading opportunities or to realize
losses on special transactions.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is current income consistent with the
stability of principal and liquidity.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the Investment Company Act of 1940.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if as a result more than 5% of the value of its total assets would be invested
in the securities of that issuer, or if it would own more than 10% of the
outstanding voting securities of that issuer.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT OF 1940. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 10% of the Fund's net assets.
INVESTING IN RESTRICTED SECURITIES
The Fund may invest in securities subject to restrictions on resale under
federal securities laws.
For purposes of the diversification restriction, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
In applying the Fund's concentration restriction: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to end users of their
services, for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry; and (c) asset-backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the Securities and Exchange Commission (SEC)
staff that only domestic bank instruments may be excluded from industry
concentration limitations, as a matter of non-fundamental policy, the Fund will
not exclude foreign bank instruments from industry concentration tests as long
as the policy of the SEC remains in effect.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7 (the Rule), which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments according to the Rule. The Fund may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in the Rule. Under the Rule,
the Board must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and redemption,
at $1.00 per share, taking into account current market conditions and the Fund's
investment objective. The procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share based upon
available indications of market value. The Board will decide what, if any, steps
should be taken if there is a difference of more than 0.5 of 1% between the two
values. The Board will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to minimize any
material dilution or other unfair results arising from differences between the
two methods of determining net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN
As a reimbursement-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund reimburses the Distributor only for those payments made to investment
professionals up to the maximum Rule 12b-1 Plan fee. The Distributor may seek
reimbursement in following years for any unreimbursed expenses permitted under
the Plan. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.
All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of September 10, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: Kirpet Co., Omaha, NE
owned approximately 64,653,883 Shares (10.33%); Bank of America NT & SA, Los
Angeles, CA owned approximately 63,593,873 Shares (10.16%); and Scott &
Stringfellow, Inc., Richmond, VA owned approximately 37,921,860 Shares (6.05%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of September 10, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the
Birth Date: July 28, 1924 and Director or Trustee of Corporation and
Federated Investors Tower the Federated Fund 54 other investment
1001 Liberty Avenue Complex; Chairman and companies in the
Pittsburgh, PA Director, Federated Fund Complex
CHAIRMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: February 3, 1934 Complex; Director, Member of Executive Corporation and
15 Old Timber Trail Committee, Children's Hospital of Pittsburgh; 54 other investment
Pittsburgh, PA Director, Robroy Industries, Inc. (coated steel companies in the
DIRECTOR conduits/computer storage equipment); Fund Complex
formerly: Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc. (physician
practice management); Director, Member of
Executive Committee, University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $5,227.03 $125,264.48 for the
Birth Date: June 23, 1937 Complex; President, Investment Properties Corporation and
Wood/ Commercial Dept. Corporation; Senior Vice President, 54 other investment
John R. Wood Associates, Inc. Realtors John R. Wood and Associates, Inc., Realtors; companies in the
3255 Tamiami Trail North Partner or Trustee in private real estate ventures Fund Complex
Naples, FL in Southwest Florida; formerly: President,
DIRECTOR Naples Property Management, Inc. and
Northgate Village Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some of the Federated $4,751.22 $47,958.02 for the
Birth Date: September 3, 1939 Fund Complex; formerly: Partner, Andersen Corporation and
175 Woodshire Drive Worldwide SC. 29 other investment
Pittsburgh, PA Companies in the
DIRECTOR Fund Complex
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: March 5, 1943 Fund Complex; Chairman, President and Chief Corporation and
353 El Brillo Way Executive Officer, Cunningham & Co., Inc. 46 other investment
Palm Beach, FL (strategic business consulting); Trustee companies in the
DIRECTOR Associate, Boston College; Director, Iperia Corp Fund Complex
(communications/software); formerly: Director,
Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and
Chief Executive Officer, Computer Consoles,
Inc.; President and Chief Operating Officer,
Wang Laboratories; Director, First National
Bank of Boston; Director, Apollo Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: October 11, 1932 Complex; Professor of Medicine, University of Corporation and
3471 Fifth Avenue Pittsburgh; Medical Director, University of 54 other investment
Suite 1111 Pittsburgh Medical Center - Downtown; companies in the
Pittsburgh, PA Hematologist, Oncologist, and Internist, Fund Complex
DIRECTOR University of Pittsburgh Medical Center;
Member, National Board of Trustees, Leukemia
Society of America.
PETER E. MADDEN Director or Trustee of the Federated Fund $4,209.51 $113,860.22 for the
Birth Date: March 16, 1942 Complex; formerly: Representative, Corporation and
One Royal Palm Way Commonwealth of Massachusetts General 54 other investment
100 Royal Palm Way Court; President, State Street Bank and Trust companies in the
Palm Beach, FL Company and State Fund Complex
DIRECTOR Street Corporation.
Previous Positions: Director, VISA USA and
VISA International; Chairman and Director,
Massachusetts Bankers Association; Director,
Depository Trust Corporation; Director, The
Boston
Stock Exchange.
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $2,408.31 $0 for the
Birth Date: April 10, 1945 of the Federated Fund Corporation and
80 South Road Complex; Management 50 other investment
Westhampton Beach, NY Consultant. companies in the
DIRECTOR Previous Positions: Chief Fund Complex
Executive Officer, PBTC International
Bank; Partner, Arthur Young & Company
(now Ernst & Young LLP); Chief
Financial Officer of Retail Banking
Sector, Chase Manhattan Bank; Senior
Vice President, Marine Midland Bank;
Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank
G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of the Federated Fund $4,992.37 $113,860.22 for the
Birth Date: December 20, 1932 Complex; President, Law Professor, Duquesne Corporation and
President, Duquesne University University; Consulting Partner, Mollica & 54 other investment
Pittsburgh, PA Murray; Director, Michael Baker Corp. companies in the
DIRECTOR (engineering, construction, operations, and Fund Complex
technical services).
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean
and Professor of Law, Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: June 21, 1935 Complex; Public Relations/Marketing/ Corporation and
4905 Bayard Street Conference Planning. 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, companies in the
DIRECTOR Aluminum Company of America; television Fund Complex
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: November 28, 1957 Fund Complex; President and Director, Heat Corporation and
2007 Sherwood Drive Wagon, Inc. (manufacturer of construction 48 other investment
Valparaiso, IN temporary heaters); President and Director, companies in the
DIRECTOR Manufacturers Products, Inc. (distributor of Fund Complex
portable construction heaters); President,
Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway contractor); formerly:
Vice President, Walsh & Kelly, Inc.
J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the $0 $0 for the
Birth Date: April 11, 1949 Federated Fund Complex; Director or Trustee of Corporation and
Federated Investors Tower some of the Funds in the Federated Fund 16 other investment
1001 Liberty Avenue Complex; President, CEO and Director, companies in the
Pittsburgh, PA Federated Investors, Inc.; President and Trustee, Fund Complex
EXECUTIVE VICE PRESIDENT AND DIRECTOR Federated Investment Management Company;
President and Trustee, Federated
Investment Counseling, President and
Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director,
Federated Services Company.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the $0 $0 for the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Corporation and
Federated Investors Tower Vice President and Treasurer of some of the 1 other investment
1001 Liberty Avenue Funds in the Federated Fund Complex; Vice company in the
Pittsburgh, PA Chairman, Federated Investors, Inc.; Vice Fund Complex
EXECUTIVE VICE PRESIDENT President, Federated Investment Management
Company, Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0 $0 for the
Birth Date: October 26, 1938 Federated Fund Complex; Executive Vice Corporation and
Federated Investors Tower President, Secretary, and Director, Federated 54 other investment
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Investment companies in the
Pittsburgh, PA Management Company; Trustee, Federated Fund Complex
EXECUTIVE VICE PRESIDENT AND SECRETARY Investment
Counseling and Director, Federated
Global Investment Management Corp.;
Director, Federated Services Company;
Director, Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice $0 $0 for the
Birth Date: June 17, 1954 President - Funds Financial Services Division, Corporation and
Federated Investors Tower Federated Investors, Inc.; formerly: various 54 other investment
1001 Liberty Avenue management positions within Funds Financial companies in the
Pittsburgh, PA Services Division of Federated Investors, Inc. Fund Complex
TREASURER
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birth Date: May 17, 1923 Funds in the Federated Fund Complex; Director Corporation and
Federated Investors Tower or Trustee of some of the Funds in the 6 other investment
1001 Liberty Avenue Federated Fund Complex; Executive Vice companies in the
Pittsburgh, PA President, Federated Investors, Inc.; Chairman Fund Complex
PRESIDENT and Director, Federated Securities Corp.
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the
Birth Date: March 3, 1949 of this Fund and various Corporation and
Federated Investors Tower other Funds in the 41 other investment
1001 Liberty Avenue Federated Fund Complex; companies in the
Pittsburgh, PA Executive Vice President, Fund Complex
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport
Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services Division;
Senior Vice President, Federated
Investment Management Company and
Passport Research, Ltd.
DEBORAH A. CUNNINGHAM Deborah A. Cunningham has been the Fund's $0 $0 for the
Birth Date: September 15, 1959 portfolio manager since August 1989. She is Corporation and
Federated Investors Tower Vice President of the Corporation. 6 other investment
1001 Liberty Avenue Ms. Cunningham joined Federated in 1981 and companies in the
Pittsburgh, PA has been a Senior Portfolio Manager and a Fund Complex
VICE PRESIDENT Senior Vice President of the Fund's Adviser
since 1997. Ms. Cunningham served as a
Portfolio Manager and a Vice President of the
Adviser from 1993 until 1996. Ms. Cunningham
is a Chartered Financial Analyst and received
her M.S.B.A. in Finance from Robert Morris
College.
MARY JO OCHSON Mary Jo Ochson is Vice President of the $0 $0 for the
Birth Date: September 12, 1953 Corporation. Ms. Ochson joined Federated in Corporation and
Federated Investors Tower 1982 and has been a Senior Portfolio Manager 7 other investment
1001 Liberty Avenue and a Senior Vice President of the Fund's companies in the
Pittsburgh, PA Adviser since 1996. From 1988 through 1995,
VICE PRESIDENT Ms. Ochson served as a Portfolio Manager and
a Vice President of the Fund's Adviser.
Ms. Ochson is a Chartered Financial Analyst
and received her M.B.A. in Finance from the
University of Pittsburgh.
</TABLE>
* An asterisk denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Director of the Corporation.
++ Messrs. Cunningham, Mansfield and Walsh became members of the Board of
Directors on January 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio. Federated Services Company may voluntarily waive a
portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountant for the Fund, Deloitte & Touche LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
MAY 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $3,072,343 $2,817,822 $2,761,277
Advisory Fee Reduction 755,754 485,748 533,592
Administrative Fee 463,309 425,199 417,215
12B-1 FEE 614,468 - -
Shareholder Services Fee 1,536,172 - -
</TABLE>
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and Start of Performance periods
ended May 31, 1999.
Yield and Effective Yield given for the 7-day period ended May 31, 1999.
<TABLE>
<CAPTION>
7 DAY START OF PERFORMANCE
PERIOD 1 YEAR 5 YEARS ON 8/15/89
<S> <C> <C> <C> <C>
Total Return NA 4.30% 4.57% 4.64%
Yield 3.94% NA NA NA
Effective Yield 4.02% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND EFFECTIVE YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated by: determining
the net change in the value of a hypothetical account with a balance of one
Share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional Shares purchased with
dividends earned from the original one Share and all dividends declared on the
original and any purchased Shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. The effective yield is calculated by compounding the unannualized
base-period return by: adding one to the base-period return, raising the sum to
the 365/7th power; and subtracting one from the result.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit and
Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
IBC/DONOGHUE'S MONEY FUND REPORT
IBC/Donoghue's Money Fund Report publishes annualized yields of money market
funds weekly. Donoghue's Money Market Insight publication reports monthly and
12-month-to-date investment results for the same money funds.
MONEY
Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended May 31, 1999 are
incorporated herein by reference to the Annual Report to Shareholders of
Government Cash Series dated May 31, 1999.
Addresses
GOVERNMENT CASH SERIES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Municipal Cash Series
A Portfolio of Cash Trust Series, Inc.
A money market mutual fund seeking current income exempt from federal regular
income tax consistent with stability of principal by investing in a portfolio of
tax exempt securities maturing in 397 days or less.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
SEPTEMBER 30, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 6
How to Redeem Shares 7
Account and Share Information 9
Who Manages the Fund? 10
Last Meeting of Shareholders 11
Financial Information 12
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund that seeks to maintain a stable net asset value
of $1.00 per share. The Fund's investment objective is current income exempt
from federal regular income tax consistent with stability of principal. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the strategies and policies described in this
prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests in tax exempt securities maturing in 397 days or less. At least
80% of the Fund's annual interest income will be exempt from federal regular
income tax. Interest from the Fund's investments may be subject to the federal
alternative minimum tax for individuals and corporations (AMT). The
dollar-weighted average maturity of the Fund's portfolio will be 90 days or
less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, even though the Fund is a
money market fund that seeks to maintain a stable net asset value, it is
possible to lose money by investing in the Fund. The Shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency.
RISK/RETURN BAR CHART AND TABLE
[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Municipal Cash Series as of the calendar year-end
for each of nine years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features nine distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1990
through 1998. The percentages noted are: 5.69%, 4.28%, 2.51%, 1.88%, 2.21%,
3.24%, 2.80%, 2.90% and 2.75%, respectively.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 1.21%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.43% (quarter ended June 30, 1990). Its lowest quarterly return was 0.41%
(quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 2.75%
5 Years 2.78%
Start of Performance 1 3.25%
</TABLE>
1 The Fund's start of performance date was August 15, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 2.93%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
MUNICIPAL CASH SERIES
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of original
purchase price or redemption proceeds, as applicable) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES (Before Waiver and Reduction) 1 Expenses That are
Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee 3 0.35%
Shareholder Services Fee 0.25%
Other Expenses 0.28%
Total Annual Fund
Operating Expenses 1.38%
1 Although not contractually obligated to do so, the adviser waived certain
amounts and the distributor elected not to accrue a portion of its distribution
(12b-1) fee. These are shown below along with the net expenses the Fund actually
paid for the fiscal year ended May 31, 1999.
Total Waivers and Reductions of Fund Expenses 0.37%
Total Actual Annual Fund Operating Expenses (after waiver and reduction) 1.01%
2 The adviser voluntarily waived a portion of the management fee during the
fiscal year ended May 31, 1999. The adviser can terminate this voluntary waiver
at any time. The management fee paid by the Fund (after voluntary waiver) was
0.38% for the fiscal year ended May 31, 1999. 3 The distributor voluntarily
elected not to accrue a portion of its distribution (12b-1) fee during the
fiscal year ended May 31, 1999. The distributor can terminate this voluntary
reduction at any time. The distribution (12b-1) fee paid by the Fund's Shares
(after the voluntary reduction) was 0.10% for the fiscal year ended May 31,
1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Shares' operating expenses are BEFORE WAIVERS AND REDUCTIONS
as shown in the Table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C>
1 Year $ 141
3 Years $ 437
5 Years $ 755
10 Years $1,657
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of high-quality tax exempt securities maturing
in 397 days or less. At least 80% of the Fund's annual interest income will be
exempt from federal regular income tax. Interest from the Fund's investments may
be subject to AMT. The dollar-weighted average maturity of the Fund's portfolio
will be 90 days or less. The Fund's investment adviser (Adviser) actively
manages the Fund's portfolio, seeking to limit the credit risk taken by the Fund
and select investments with enhanced yields.
The Adviser performs a fundamental credit analysis to develop an approved list
of issuers and securities that meet the Adviser's standard for minimal credit
risk. The Adviser monitors the credit risks of all portfolio securities on an
ongoing basis by reviewing periodic financial data and ratings of nationally
recognized rating services.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook and the tax exempt securities available. The Adviser formulates its
interest rate outlook by analyzing a variety of factors such as current and
expected U.S. economic growth; current and expected interest rates and
inflation; and the Federal Reserve's monetary policy. The Adviser structures the
portfolio by investing primarily in variable rate demand instruments and
municipal notes. The Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects interest
rates to fall. This strategy seeks to enhance the returns from favorable
interest rate changes and reduce the effect of unfavorable changes.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may temporarily depart from its principal investment strategies by
investing its assets in securities subject to federal income tax. It may do this
to minimize potential losses and maintain liquidity to meet shareholder
redemptions during adverse market conditions. This may cause the Fund to receive
and distribute taxable income to investors.
What are the Principal Securities in Which the Fund Invests?
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to federal income taxes. Fixed income securities pay interest, dividends
or distributions at a specified rate. The rate may be fixed or adjusted
periodically. The issuer must also repay the principal amount of the security,
normally within a specified time.
Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
VARIABLE RATE DEMAND INSTRUMENTS
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the security
for its face value upon demand. The securities also pay interest at a variable
rate intended to cause the securities to trade at their face value. The Fund
treats demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though their
stated maturity may extend beyond 397 days.
MUNICIPAL NOTES
Municipal notes are short-term tax exempt securities. Many municipalities issue
such notes to fund their current operations before collecting taxes or other
municipal revenues. Municipalities may also issue notes to fund capital projects
prior to issuing long-term bonds. The issuers typically repay the notes at the
end of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations or be of comparable quality to securities having such
ratings.
What are the Specific Risks of Investing in the Fund?
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely on the Adviser's credit assessment.
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities credit
enhanced by banks or companies with similar characteristics. As a result, the
Fund will be more susceptible to any economic, business, political or other
developments which generally affect these entities.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. The Fund attempts to stabilize the net asset value (NAV) of its Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
Fund cannot guarantee that its NAV will always remain at $1.00 per Share. The
Fund does not charge a front-end sales charge. NAV is determined at 12:00 noon
and 3:00 p.m. (Eastern time) and as of the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. The required
minimum subsequent investment amount is $500.
An institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions such as banks,
fiduciaries, custodians of public funds, investment advisers and broker/dealers,
or individuals, directly or through investment professionals. The Fund may not
be a suitable investment for retirement plans.
When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions.
If you call before 12:00 noon (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 12:00 noon (Eastern time), your redemption will be wired to
you the following business day. You will receive that day's dividend. Under
limited circumstances, arrangements may be made with the Distributor for
same-day payment of redemption proceeds, without that day's dividend, for
redemption requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will continue to
receive the daily dividend declared on the Shares being redeemed until the check
is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares. There is
an annual fee for this service that the Fund will automatically deduct from your
account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts may be
closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. It is anticipated that
Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or may experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Last Meeting of Shareholders
An Annual Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholder voting at the meeting, there were
447,535,555 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
NAMES FOR TO VOTE
<S> <C> <C>
John F. Cunningham 307,989,428 18,013,386
Charles F. Mansfield, Jr. 308,769,110 17,233,704
John S. Walsh 308,809,413 17,193,401
</TABLE>
1 The following Directors continued their terms as Directors of the
Company: John F. Donahue, Thomas G. Bigley, John T. Conroy, Jr.,
Nicholas Constantakis, Lawrence D. Ellis, M.D., Peter E. Madden, John E.
Murray, Jr., J.D., S.J.D., Marjorie P. Smuts, and J. Christopher
Donahue.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the Company's independent
auditors:
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
309,313,210 1,772,027 14,917,577
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,989,380 12,735,569 53,154,023 34,123,842
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,556,983 12,897,674 53,154,023 34,394,134
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
221,872,783 16,704,313 53,154,024 34,271,694
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,636,267 13,017,902 53,154,024 34,194,621
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
222,215,814 15,575,807 53,154,024 35,057,169
</TABLE>
(g) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
224,477,951 14,405,649 53,154,024 33,965,190
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
220,241,269 18,449,992 53,154,024 34,157,529
</TABLE>
(i) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
221,191,245 17,543,731 53,154,024 34,113,814
</TABLE>
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
224,299,400 14,335,862 53,154,023 34,213,529
</TABLE>
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,178,645 14,155,224 53,154,023 33,514,922
</TABLE>
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche, LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
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.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Municipal Cash Series
A Portfolio of Cash Trust Series, Inc.
SEPTEMBER 30, 1999
A Statement of Additional Information (SAI), dated September 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual Report
discusses market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year. To obtain the SAI,
the Annual Report, the Semi-Annual Report and other information without charge,
and make inquiries, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[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
Investment Company Act File No. 811-5843
Cusip 147551303
9080102A (9/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Municipal Cash Series
A Portfolio of Cash Trust Series, Inc.
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Municipal Cash Series (Fund), dated
September 30, 1999. This SAI incorporates by reference the Fund's Annual Report.
Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.
SEPTEMBER 30, 1999
[Graphic]
Federated
World-Class Investment Manager
Municipal Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
9080102B (9/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
How is the Fund Sold? 4
Subaccounting Services 5
Redemption in Kind 5
Account and Share Information 5
Tax Information 5
Who Manages and Provides Services to the Fund? 6
How Does the Fund Measure Performance? 9
Who is Federated Investors, Inc.? 10
Financial Information 12
Investment Ratings 12
Addresses 13
How is the Fund Organized?
The Fund is a diversified portfolio of Cash Trust Series, Inc. (Corporation).
The Corporation, an open-end, management investment company, was originally
organized as a Massachusetts business trust under the laws of the Commonwealth
of Massachusetts on May 16, 1989. It was reorganized under the laws of the State
of Maryland on February 1, 1993. The Corporation may offer separate series of
shares representing interests in separate portfolios of securities.
The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in such
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or may be adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
TAX EXEMPT SECURITIES
Tax exempt securities are fixed income securities that pay interest that is not
subject to regular federal income taxes. Typically, states, counties, cities and
other political subdivisions and authorities issue tax exempt securities. The
market categorizes tax exempt securities by their source of repayment.
General Obligation Bonds
General obligation bonds are supported by the issuer's power to exact property
or other taxes. The issuer must impose and collect taxes sufficient to pay
principal and interest on the bonds. However, the issuer's authority to impose
additional taxes may be limited by its charter or state law.
Special Revenue Bonds
Special revenue bonds are payable solely from specific revenues received by the
issuer such as specific taxes, assessments, tolls, or fees. Bondholders may not
collect from the municipality's general taxes or revenues. For example, a
municipality may issue bonds to build a toll road, and pledge the tolls to repay
the bonds. Therefore, a shortfall in the tolls normally would result in a
default on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance private
entities. For example, a municipality may issue bonds to finance a new factory
to improve its local economy. The municipality would lend the proceeds from its
bonds to the company using the factory, and the company would agree to make loan
payments sufficient to repay the bonds. The bonds would be payable solely from
the company's loan payments, not from any other revenues of the municipality.
Therefore, any default on the loan normally would result in a default on the
bonds.
The interest on many types of private activity bonds is subject to the federal
alternative minimum tax (AMT). The Fund may invest in bonds subject to AMT.
MUNICIPAL LEASES
Municipalities may enter into leases for equipment or facilities. In order to
comply with state public financing laws, these leases are typically subject to
annual appropriation. In other words, a municipality may end a lease, without
penalty, by not providing for the lease payments in its annual budget. After the
lease ends, the lessor can resell the equipment or facility but may lose money
on the sale. The Fund may invest in securities supported by individual leases or
pools of municipal leases.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate risks and credit risks of a zero coupon security.
CREDIT ENHANCEMENT
Common types of credit enhancement include guarantees, letters of credit, bond
insurance and surety bonds. Credit enhancement also includes arrangements where
securities or other liquid assets secure payment of a fixed income security. If
a default occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risks by providing
another source of payment for a fixed income security.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
SPECIAL TRANSACTIONS
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with special transactions,
including delayed delivery transactions, the Fund will either own the underlying
assets, enter into an offsetting transaction or set aside readily marketable
securities with a value that equals or exceeds the Fund's obligations. Unless
the Fund has other readily marketable assets to set aside, it cannot trade
assets used to secure such obligations without entering into an offsetting
transaction or terminating the special transaction. This may cause the Fund to
miss favorable trading opportunities or to realize losses on special
transactions.
TEMPORARY DEFENSIVE INVESTMENTS
The Fund may make temporary defensive investments in the following taxable
securities:
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
INVESTMENT RATINGS
The securities in which the Fund invests must be rated in one of the two highest
short-term rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") or be of comparable quality to securities having
such ratings. 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 ("S&P"), MIG-1 or MIG-2 by Moody's Investors
Service, Inc. ("Moody's"), or F-1+, F-1, or F-2 by Fitch Investors Service, L.P.
("Fitch") are all considered rated in one of the two highest short-term rating
categories. The Fund will follow applicable regulations in determining whether a
security rated by more than one NRSRO can be treated as being in one of the two
highest short-term rating categories; currently, such securities must be rated
by two NRSROs in one of their two highest rating categories.
See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
TAX RISKS
In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest received
and distributed by the Fund to shareholders to be taxable.
Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.
FUNDAMENTAL INVESTMENT OBJECTIVE AND POLICY
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax consistent with stability of principal.
The Fund will invest its assets so that at least 80% of its annual interest
income is exempt from federal regular income tax.
This investment objective and policy cannot be changed without shareholder
approval.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT OF 1940. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities.
PLEDGING ASSETS
The Fund will not mortgage, pledge or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 10% of the Fund's net assets.
INVESTING IN RESTRICTED SECURITIES
The Fund may invest in securities subject to restrictions on resale under the
federal securities laws.
For purposes of the diversification limitation, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
In applying the Fund's concentration limitation: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities. To conform to the current view of the Securities and Exchange
Commission (SEC) staff that only domestic bank instruments may be excluded from
industry concentration limitations, as a matter of non-fundamental policy, the
Fund will not exclude foreign bank instruments from industry concentration tests
as long as the policy of the SEC remains in effect.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7 (the Rule), which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments, as well as its ability to consider a security as having received
the requisite short-term ratings by NRSROs, according to the Rule. The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in the Rule. Under the Rule,
the Board must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and redemption,
at $1.00 per share, taking into account current market conditions and the Fund's
investment objective. The procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share based upon
available indications of market value. The Board will decide what, if any, steps
should be taken if there is a difference of more than 0.5 of 1% between the two
values. The Board will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to minimize any
material dilution or other unfair results arising from differences between the
two methods of determining net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN
As a reimbursement-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund reimburses the Distributor only for those payments made to investment
professionals up to the maximum Rule 12b-1 Plan fee. The Distributor may seek
reimbursement in following years for any unreimbursed expenses permitted under
the Plan. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution-related or
shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.
All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of September 10, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares:
BHC Securities, Inc., Philadelphia, PA owned approximately 37,258,017 shares
(8.28%); City Securities Corporation, Indianapolis, IN owned approximately
36,403,060 shares (8.09%); FISERV Correspondent Services Inc., Denver, CO owned
approximately 29,346,719 shares (6.52%); Cust & Co., Los Angeles, CA owned
approximately 26,674,937 shares (5.93%); and Special Custody Account for the
Exclusive Benefit of Customers of Stern Agee & Leach, Birmingham, AL owned
approximately 23,694,000 shares (5.26%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of September 10, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS FROM CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the
Birth Date: July 28, 1924 and Director or Trustee of Corporation and
Federated Investors Tower the Federated Fund 54 other investment
1001 Liberty Avenue Complex; Chairman and companies in the
Pittsburgh, PA Director, Federated Fund Complex
CHAIRMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and Director,
Federated Investment Counseling, and
Federated Global Investment Management
Corp.; Chairman, Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: February 3, 1934 Complex; Director, Member of Executive Corporation and
15 Old Timber Trail Committee, Children's Hospital of Pittsburgh; 54 other investment
Pittsburgh, PA Director, Robroy Industries, Inc. (coated steel companies in the
DIRECTOR conduits/computer storage equipment); Fund Complex
formerly: Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc. (physician
practice management); Director, Member of
Executive Committee, University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $5,227.03 $125,264.48 for the
Birth Date: June 23, 1937 Complex; President, Investment Properties Corporation and
Wood/Commercial Dept. Corporation; Senior Vice President, 54 other investment
John R. Wood Associates, Inc. John R. Wood and Associates, Inc., Realtors; companies in the
Realtors Partner or Trustee in private real estate ventures Fund Complex
3255 Tamiami Trail North in Southwest Florida; formerly: President,
Naples, FL Naples Property Management, Inc. and
DIRECTOR Northgate Village Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $4,751.22 $47,958.02 for the
Birth Date: September 3, 1939 Complex; formerly: Partner, Andersen Corporation and
175 Woodshire Drive Worldwide SC. 29 other investment
Pittsburgh, PA companies in the
DIRECTOR Fund Complex
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: March 5, 1943 Fund Complex; Chairman, President and Chief Corporation and
353 El Brillo Way Executive Officer, Cunningham & Co., Inc. 46 other investment
Palm Beach, FL (strategic business consulting); Trustee companies in the
DIRECTOR Associate, Boston College; Director, Iperia Corp. Fund Complex
(communications/software); formerly: Director,
Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and
Chief Executive Officer, Computer Consoles,
Inc.; President and Chief Operating Officer,
Wang Laboratories; Director, First National
Bank of Boston; Director, Apollo Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: October 11, 1932 Complex; Professor of Medicine, University of Corporation and
3471 Fifth Avenue Pittsburgh; Medical Director, University of 54 other investment
Suite 1111 Pittsburgh Medical Center - Downtown; companies in the
Pittsburgh, PA Hematologist, Oncologist, and Internist, Fund Complex
DIRECTOR University of Pittsburgh Medical Center;
Member, National Board of Trustees, Leukemia
Society of America.
PETER E. MADDEN Director or Trustee of the Federated Fund $4,209.51 $113,860.22 for the
Birth Date: March 16, 1942 Complex; formerly: Representative, Corporation and
One Royal Palm Way Commonwealth of Massachusetts General 54 other investment
100 Royal Palm Way Court; President, State Street Bank and Trust companies in the
Palm Beach, FL Company and State Street Corporation. Fund Complex
DIRECTOR Previous Positions: Director, VISA USA and
VISA International; Chairman and Director,
Massachusetts Bankers Association;
Director, Depository Trust Corporation;
Director, The Boston Stock Exchange.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS FROM CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some $2,408.40 $0 for the
Birth Date: April 10, 1945 of the Federated Fund Corporation and
80 South Road Complex; Management 50 other investment
Westhampton Beach, NY Consultant. companies in the
DIRECTOR Previous Positions: Chief Fund Complex
Executive Officer, PBTC International Bank;
Partner, Arthur Young & Company (now Ernst
& Young LLP); Chief Financial Officer of
Retail Banking Sector, Chase Manhattan
Bank; Senior Vice President, Marine Midland
Bank; Vice President, Citibank; Assistant
Professor of Banking and Finance, Frank G.
Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of the Federated Fund $4,992.37 $113,860.22 for the
Birth Date: December 20, 1932 Complex; President, Law Professor, Duquesne Corporation and
President, Duquesne University University; Consulting Partner, Mollica & 54 other investment
Pittsburgh, PA Murray; Director, Michael Baker Corp. companies in the
DIRECTOR (engineering, construction, operations, and Fund Complex
technical services).
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean
and Professor of Law, Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: June 21, 1935 Complex; Public Relations/Marketing/ Corporation and
4905 Bayard Street Conference Planning. 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, companies in the
DIRECTOR Aluminum Company of America; television Fund Complex
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: November 28, 1957 Fund Complex; President and Director, Heat Corporation and
2007 Sherwood Drive Wagon, Inc. (manufacturer of construction 48 other investment
Valparaiso, IN temporary heaters); President and Director, companies in the
DIRECTOR Manufacturers Products, Inc. (distributor of Fund Complex
portable construction heaters); President,
Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh
& Kelly, Inc. (heavy highway contractor);
formerly: Vice President, Walsh & Kelly, Inc.
J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the $0 $0 for the
Birth Date: April 11, 1949 Federated Fund Complex; Director or Trustee of Corporation and
Federated Investors Tower some of the Funds in the Federated Fund 16 other investment
1001 Liberty Avenue Complex; President, CEO and Director, companies in the
Pittsburgh, PA Federated Investors, Inc.; President and Trustee, Fund Complex
EXECUTIVE VICE PRESIDENT Federated Investment Management Company;
AND DIRECTOR President and Trustee, Federated Investment
Counseling; President and Director,
Federated Global Investment Management
Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services
Company; Director, Federated Services
Company.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the $0 $0 for the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Corporation and
Federated Investors Tower Vice President and Treasurer of some of the 1 other investment
1001 Liberty Avenue Funds in the Federated Fund Complex; Vice company in the
Pittsburgh, PA Chairman, Federated Investors, Inc.; Vice Fund Complex
EXECUTIVE VICE PRESIDENT President, Federated Investment Management
Company, Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated
Shareholder Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0 $0 for the
Birth Date: October 26, 1938 Federated Fund Complex; Executive Vice Corporation and
Federated Investors Tower President, Secretary and Director, Federated 54 other investment
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Investment companies in the
Pittsburgh, PA Management Company; Trustee, Federated Fund Complex
EXECUTIVE VICE PRESIDENT Investment Counseling and Director, Federated
AND SECRETARY Global Investment Management Corp.; Director,
Federated Services Company; Director,
Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice $0 $0 for the
Birth Date: June 17, 1954 President - Funds Financial Services Division, Corporation and
Federated Investors Tower Federated Investors, Inc.; formerly: various 54 other investment
1001 Liberty Avenue management positions within Funds Financial companies in the
Pittsburgh, PA Services Division of Federated Investors, Inc. Fund Complex
TREASURER
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birth Date: May 17, 1923 Funds in the Federated Fund Complex; Director Corporation and
Federated Investors Tower or Trustee of some of the Funds in the 6 other investment
1001 Liberty Avenue Federated Fund Complex; Executive Vice companies in the
Pittsburgh, PA President, Federated Investors, Inc.; Chairman Fund Complex
PRESIDENT and Director, Federated Securities Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS FROM CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer $0 $0 for the
Birth Date: March 3, 1949 of this Fund and various Corporation and
Federated Investors Tower other Funds in the 41 other investment
1001 Liberty Avenue Federated Fund Complex; companies in the
Pittsburgh, PA Executive Vice President, Fund Complex
CHIEF INVESTMENT OFFICER Federated Investment
Counseling, Federated Global Investment
Management Corp., Federated Investment
Management Company and Passport Research,
Ltd.; Registered Representative, Federated
Securities Corp.; Portfolio Manager,
Federated Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated Investment
Counseling Institutional Portfolio
Management Services Division; Senior Vice
President, Federated Investment Management
Company and Passport Research, Ltd.
DEBORAH A. CUNNINGHAM Deborah A. Cunningham is Vice President of $0 $0 for the
Birth Date: September 15, 1959 the Corporation. Ms. Cunningham joined Corporation and
Federated Investors Tower Federated in 1981 and has been a Senior 6 other investment
1001 Liberty Avenue Portfolio Manager and a Senior Vice President companies in the
Pittsburgh, PA of the Fund's Adviser since 1997. Fund Complex
VICE PRESIDENT Ms. Cunningham served as a Portfolio Manager
and a Vice President of the Adviser from 1993
until 1996. Ms. Cunningham is a Chartered
Financial Analyst and received her M.B.A. in
Finance from Robert Morris College.
MARY JO OCHSON Mary Jo Ochson has been the Fund's portfolio $0 $0 for the
Birth Date: September 12, 1953 manager since August 1989. She is Vice Corporation and
Federated Investors Tower President of the Corporation. Ms. Ochson 7 other investment
1001 Liberty Avenue joined Federated in 1982 and has been a companies in the
Pittsburgh, PA Senior Portfolio Manager and a Senior Vice Fund Complex
VICE PRESIDENT President of the Fund's Adviser since 1996.
From 1988 through 1995, Ms. Ochson served
as a Portfolio Manager and a Vice President of
the Fund's Adviser. Ms. Ochson is a Chartered
Financial Analyst and received her M.B.A. in
Finance from the University of Pittsburgh.
</TABLE>
* An asterisk denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Director of the Corporation.
++ Messrs. Cunningham, Mansfield and Walsh became members of the Board of
Directors on January 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio. Federated Services Company may voluntarily waive a
portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type, and
number of accounts and transactions made by
shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountant for the Fund, Deloitte & Touche LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $2,866,150 $2,910,985 $2,782,055
Advisory Fee Reduction 670,762 605,529 497,998
Brokerage Commissions 0 0 0
Administrative Fee 432,215 439,247 420,342
12B-1 FEE 573,230 - -
SHAREHOLDER SERVICES FEE 1,433,075 - -
</TABLE>
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and Start of Performance periods
ended May 31, 1999.
Yield, Effective Yield and Tax-Equivalent Yield given for the 30-day period
ended May 31, 1999.
<TABLE>
<CAPTION>
7-DAY START OF PERFORMANCE
PERIOD 1 YEAR 5 YEARS ON AUGUST 25, 1989
<S> <C> <C> <C> <C>
Total Return NA 2.58% 2.83% 3.22%
Yield 2.52% NA NA NA
Effective Yield 2.55% NA NA NA
Tax-Equivalent Yield 4.17% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated by: determining
the net change in the value of a hypothetical account with a balance of one
Share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional Shares purchased with
dividends earned from the original one Share and all dividends declared on the
original and any purchased Shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base-period return by
365/7. The effective yield is calculated by compounding the unannualized
base-period return by: adding one to the base-period return, raising the sum to
the 365/7th power; and subtracting one from the result. The tax-equivalent yield
of Shares is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that Shares would have had to earn to equal the actual yield,
assuming a specific tax rate.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Fund. The
interest earned by the municipal securities owned by the Fund generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Fund's income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT
FOR 1999 MULTISTATE
MUNICIPAL FUND
FEDERAL TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60%
<S> <C> <C> <C> <C> <C>
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over 283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over 283,150
TAX-EXEMPT YIELD: TAXABLE YIELD EQUIVALENT:
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the tax yield equivalent.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
IBC/DONOGHUE'S MONEY FUND REPORT
IBC/Donoghue's Money Fund Report publishes annualized yields of money market
funds weekly. Donoghue's Money Market Insight publication reports monthly and
12-month-to-date investment results for the same money funds.
MONEY
Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended May 31, 1999 are
incorporated herein by reference to the Annual Report to Shareholders of
Municipal Cash Series dated May 31, 1999.
Investment Ratings
STANDARD & POOR'S SHORT-TERM MUNICIPAL OBLIGATION RATINGS
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1-Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2-Satisfactory capacity to pay principal and interest.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
COMMERCIAL PAPER (CP) RATINGS
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1-This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2-Capacity for timely payment on issues with this designation is satisfactory.
However, the relative degree of safety is not as high as for issues designated
A-1.
LONG-TERM DEBT RATINGS
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest-rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATION
RATINGS
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1-This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2-This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
VARIABLE RATE DEMAND NOTES (VRDNS) AND TENDER OPTION BONDS (TOBS)
RATINGS
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
COMMERCIAL PAPER (CP) RATINGS
P-1-Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2-Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
LONG-TERM DEBT RATINGS
AAA-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR-Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1)-The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2)-The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3)-The underlying issuer/obligor/guarantor has other outstanding debt rated A
by S&P or Moody's.
FITCH INVESTORS SERVICE, L.P. SHORT-TERM DEBT RATING DEFINITIONS
F-1+-Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1-Very Strong Credit Quality. Issues assigned this rating reflect an assurance
for timely payment, only slightly less in degree than issues rated F-1+.
F-2-Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Addresses
MUNICIPAL CASH SERIES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT AUDITORS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Prime Cash Series
A Portfolio of Cash Trust Series, Inc.
A money market mutual fund seeking current income consistent with stability of
principal and liquidity by investing primarily in a portfolio of high-quality,
fixed income securities maturing in 397 days or less.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
SEPTEMBER 30, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which
the Fund Invests? 4
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 6
How is the Fund Sold? 6
How to Purchase Shares 7
How to Redeem Shares 8
Account and Share Information 10
Who Manages the Fund? 11
Last Meeting of Shareholders 12
Financial Information 13
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund that seeks to maintain a stable net asset value
of $1.00 per share. The Fund's investment objective is current income consistent
with stability of principal and liquidity. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in a portfolio of high quality fixed income
securities, issued by banks, corporations, and the U.S. government, maturing in
397 days or less. The dollar-weighted average maturity of the Fund's portfolio
will be 90 days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, even though the Fund is a
money market fund that seeks to maintain a stable net asset value, it is
possible to lose money by investing in the Fund. The Shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency.
RISK/RETURN BAR CHART AND TABLE
[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Prime Cash Series as of the calendar year-end for
each of nine years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2% up to 8%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended1998 The light gray shaded chart features nine distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1990 through1998. The
percentages noted are: 7.74%, 5.47%, 3.06%, 2.38%, 4.48%, 5.20%, 4.63%, 4.77%
and 4.73% respectively.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 2.05%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.91% (quarter ended March 31, 1990). Its lowest quarterly return was 0.58%
(quarters ended June 30, 1993 and September 30, 1993).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
CALENDAR PERIOD FUND
1 Year 4.73%
5 Years 4.56%
Start of Performance 1 4.76%
1 The Fund's start of performance date was August 15, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 4.37%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
PRIME CASH SERIES
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases (as a percentage
of offering price) None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption
proceeds, as applicable) None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions)
(as a percentage of
offering price) None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None
Exchange Fee None
ANNUAL FUND OPERATING
EXPENSES (Before Waiver
and Reduction) 1
Expenses That are Deducted
From Fund Assets (as a
percentage of average net
assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee 3 0.35%
Shareholder Services Fee 0.25%
Other Expenses 0.31%
Total Annual Fund
Operating Expenses 1.41%
1 Although not contractually obligated to do so, the adviser waived certain
amounts and the distributor elected not to accrue a portion of its distribution
(12b-1) fee. These are shown below along with the net expenses the Fund actually
paid for the fiscal year ended May 31, 1999.
Total Waivers and
Reductions of Fund
Expenses 0.41%
Total Actual Annual Fund
Operating Expenses (after
waivers and reductions) 1.00%
2 The adviser voluntarily waived a portion of the management fee during the fiscal
year ended May 31, 1999. The adviser can terminate this voluntary waiver at any
time. The management fee paid by the Fund's Shares (after the voluntary waiver)
was 0.34% for the year ended May 31, 1999.
3 The distributor voluntarily elected not to accrue a portion of its distribution
(12b-1) fee during the fiscal year ended May 31, 1999. The distributor can
terminate this voluntary reduction at any time. The distribution (12b-1) fee paid
by the Fund (after the voluntary reduction) was 0.10% for the year ended May 31,
1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Shares' operating expenses are BEFORE WAIVERS AND REDUCTIONS
as shown in the Table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year $ 144
3 Years $ 446
5 Years $ 771
10 Years $ 1,691
What are the Fund's Investment Strategies?
The Fund invests primarily in a portfolio of high-quality fixed income
securities, issued by banks, corporations and the U.S. government, maturing in
397 days or less. The dollar-weighted average maturity of the Fund's portfolio
will be 90 days or less. The Fund's investment adviser (Adviser) actively
manages the Fund's portfolio, seeking to limit the credit risk taken by the Fund
and provide enhanced returns.
The Adviser performs a fundamental credit analysis to develop an approved list
of issuers and securities that meet the Adviser's standard for minimal credit
risk. The Adviser monitors the credit risks of all portfolio securities on an
ongoing basis by reviewing periodic financial data and ratings of nationally
recognized rating services.
The Adviser targets an average portfolio maturity based upon its interest rate
outlook. The Adviser formulates its interest rate outlook by analyzing a variety
of factors, such as current and expected U.S. economic growth; current and
expected interest rates and inflation; and the Federal Reserve's monetary
policy. The Adviser structures the portfolio by investing primarily in variable
rate demand instruments and commercial paper to achieve a limited barbell
structure. The Adviser generally shortens the portfolio's maturity when it
expects interest rates to rise and extends the maturity when it expects interest
rates to fall. This strategy seeks to enhance the returns from favorable
interest rate changes and reduce the effect of unfavorable changes.
What are the Principal Securities in Which the Fund Invests?
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. The
following describes the types of fixed income securities in which the Fund
invests.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes or pass through certificates.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser. Repurchase agreements are subject
to credit risks.
INVESTMENT RATINGS
The Fund invests in high quality fixed income instruments that are either rated
in one of the two highest short-term rating categories by one or more nationally
recognized statistical rating organizations or are of comparable quality to
securities having such ratings.
What are the Specific Risks of Investing in the Fund?
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely on the Adviser's credit assessment.
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
SECTOR RISKS
A substantial part of the Fund's portfolio may be comprised of securities credit
enhanced by banks or companies with similar characteristics. As a result, the
Fund will be more susceptible to any economic, business, political or other
developments which generally affect these entities.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. The Fund attempts to stabilize the net asset value (NAV) of its Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
Fund cannot guarantee that its NAV will always remain at $1.00 per Share. The
Fund does not charge a front-end sales charge. NAV is determined at 12:00 noon
and 3:00 p.m. (Eastern time) and as of the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. The required
minimum subsequent investment amount is $500. The minimum initial and subsequent
investment amounts for retirement plans are $250 and $100, respectively.
An institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions such as banks,
fiduciaries, custodians of public funds, investment advisers and broker/dealers
or individuals, directly or through investment professionals.
When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund at
1-800-341-7400 once you have completed the appropriate authorization form
for telephone transactions.
If you call before 3:00 p.m. (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time), your redemption will be wired to you
the following business day. You will receive that day's dividend. Under limited
circumstances, arrangements may be made with the Distributor for same-day
payment of redemption proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration; * amount
to be redeemed; and * signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of record; *
your redemption will be sent to an address of record that was changed within the
last 30 days; or * a redemption is payable to someone other than the
shareholder(s) of record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will continue to
receive the daily dividend declared on the Shares being redeemed until the check
is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares. There is
an annual fee for this service that the Fund will automatically deduct from your
account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non- retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or may experience other
date-related problems. The Year 2000 problem may cause systems to process
information incorrectly and could disrupt businesses, such as the Fund, that
rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase.
However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities will have
difficulties determining the Year 2000 readiness of those entities.
The financial impact of these issues for the Fund is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Fund.
Last Meeting of Shareholders
A Special Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholder voting at the meeting, there were
4,697,776,987 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
NAME FOR TO VOTE
<S> <C> <C>
John F. Cunningham 2,321,373,572 69,677,365
Charles F. Mansfield, Jr. 2,320,978,712 70,072,255
John S. Walsh 2,320,869,344 70,181,593
</TABLE>
1 The following Directors continued their terms as Directors of the
Company: John F. Donahue, Thomas G. Bigley, John T. Conroy, Jr., Nicholas
Constantakis, Lawrence D. Ellis, M.D., Peter E. Madden, John E. Murray,
Jr., J.D., S.J.D., Marjorie P. Smuts, and J. Christopher Donahue.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the Company's independent
auditors:
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
2,291,538,887 21,898,105 77,613,945
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,733,068,671 83,818,169 239,408,512 334,755,585
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,724,125,798 92,073,775 239,408,512 335,442,852
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,713,125,763 105,756,032 239,408,513 332,760,629
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding underwriting
securities:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,737,153,111 81,693,606 239,408,512 332,795,708
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding lending assets:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,720,988,373 98,825,822 239,408,512 331,828,230
</TABLE>
(g) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,735,041,139 82,949,588 239,408,513 333,651,697
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,707,415,098 114,209,062 239,408,512 330,018,265
</TABLE>
(i) To amend, and make non-fundamental, the Fund's fundamental investment policy
regarding pledging assets:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,698,907,673 111,824,933 239,408,512 340,909,819
</TABLE>
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,705,920,604 106,434,858 239,408,512 339,286,963
</TABLE>
The following item did not receive the required (greater than 50%) majority
approval vote of shareholders and, therefore, was not approved:
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,721,512,030 99,720,477 239,408,513 330,409,917
</TABLE>
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
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 voluntary
waivers had not occurred, the ratios would have been as indicated.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Prime Cash Series
A Portfolio of Cash Trust Series, Inc.
SEPTEMBER 30, 1999
A Statement of Additional Information (SAI), dated September 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual
Report's Management Discussion and Analysis discusses market conditions and
investment strategies that significantly affected the Fund's performance during
its last fiscal year. To obtain the SAI, the Annual Report, the Semi-Annual
Report and other information without charge, and make inquiries, call your
investment professional or the Fund at 1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[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
Investment Company Act File No. 811-5843
Cusip 147551105
9080101A (9/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Prime Cash Series
A Portfolio of Cash Trust Series, Inc.
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Prime Cash Series (Fund), dated
September 30, 1999. This SAI incorporates by reference the Fund's Annual Report.
Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.
SEPTEMBER 30, 1999
[Graphic]
Federated
World-Class Investment Manager
Prime Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
9080101B (9/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
How is the Fund Sold? 5
Subaccounting Services 5
Redemption in Kind 6
Account and Share Information 6
Tax Information 6
Who Manages and Provides Services to the Fund? 7
How Does the Fund Measure Performance? 10
Who is Federated Investors, Inc.? 11
Financial Information 13
Addresses 13
How is the Fund Organized?
The Fund is a diversified portfolio of Cash Trust Series, Inc. (Corporation).
The Corporation, an open-end, management investment company, was originally
organized as a Massachusetts business trust under the laws of the Commonwealth
of Massachusetts on May 16, 1989. It was reorganized under the laws of the State
of Maryland on February 1, 1993. The Corporation may offer separate series of
shares representing interests in separate portfolios of securities.
The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in such
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have no
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities. Agency securities are
generally regarded as having low credit risks, but not as low as treasury
securities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Fund may also purchase interests in bank loans to
companies. The credit risks of corporate debt securities vary widely among
issuers.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year.
MUNICIPAL SECURITIES
Municipal securities are issued by states, counties, cities and other political
subdivisions and authorities. Although many municipal securities are exempt from
federal income tax, the Fund may invest in taxable municipal securities.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates. Asset backed securities may have prepayment
risks.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the interest rate and credit risks of a zero coupon security.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in
U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-
U.S. branches of U.S. or foreign banks.
INSURANCE CONTRACTS
Insurance contracts include guaranteed investment contracts, funding agreements
and annuities. The Fund treats these contracts as fixed income securities.
CREDIT ENHANCEMENT
Credit enhancement consists of an arrangement in which a company agrees to pay
amounts due on a fixed income security if the issuer defaults. In some cases the
company providing credit enhancement makes all payments directly to the security
holders and receives reimbursement from the issuer. Normally, the credit
enhancer has greater financial resources and liquidity than the issuer. For this
reason, the Adviser usually evaluates the credit risk of a fixed income security
based solely upon its credit enhancement.
FOREIGN SECURITIES
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if:
* it is organized under the laws of, or has a principal office located in,
another country;
* the principal trading market for its securities is in another country; or
* it (or its subsidiaries) derived in its most current fiscal year at least 50%
of its total assets, capitalization, gross revenue or profit from goods
produced, services performed, or sales made in another country.
Along with the risks normally associated with domestic securities of the same
type, foreign securities are subject to risks of foreign investing.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
SPECIAL TRANSACTIONS
SECURITIES LENDING
The Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from the
borrower as collateral. The borrower must furnish additional collateral if the
market value of the loaned securities increases. Also, the borrower must pay the
Fund the equivalent of any dividends or interest received on the loaned
securities.
The Fund will reinvest cash collateral in securities that qualify as an
acceptable investment for the Fund. However, the Fund must pay interest to the
borrower for the use of cash collateral.
Loans are subject to termination at the option of the Fund or the borrower. The
Fund will not have the right to vote on securities while they are on loan, but
it will terminate a loan in anticipation of any important vote. The Fund may pay
administrative and custodial fees in connection with a loan and may pay a
negotiated portion of the interest earned on the cash collateral to a securities
lending agent or broker.
Securities lending activities are subject to interest rate risks and credit
risks.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
ASSET COVERAGE
In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations without
entering into an offsetting transaction or terminating the special transaction.
This may cause the Fund to miss favorable trading opportunities or to realize
losses on special transactions.
INVESTMENT RATINGS
A nationally recognized statistical rating organization's ("NRSRO's") two
highest rating categories are determined without regard for sub-categories and
gradations. For example, securities rated A-1+, A-1 or A-2 by Standard & Poor's
("S&P"), Prime-1 or Prime-2 by Moody's Investors Service, Inc. ("Moody's"), or
F-1 (+ or -) or F-2 (+ or -) by Fitch IBCA, Inc. ("Fitch") are all considered
rated in one of the two highest short-term rating categories. The Fund will
limit its investments in securities rated in the second highest short-term
rating category, e.g., A-2 by S&P, Prime-2 by Moody's, or F-2 (+ or -) by Fitch,
to not more than 5% of its total assets, with not more than 1% invested in the
securities of any one issuer. The Fund will follow applicable regulations in
determining whether a security rated by more than one NRSRO can be treated as
being in one of the two highest short-term rating categories; currently, such
securities must be rated by two NRSROs in one of their two highest rating
categories. See "Regulatory Compliance."
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Fixed income securities generally compensate for greater credit risk by paying
interest at a higher rate. The difference between the yield of a security and
the yield of a U.S. Treasury security with a comparable maturity (the spread)
measures the additional interest paid for risk. Spreads may increase generally
in response to adverse economic or market conditions. A security's spread may
also increase if the security's rating is lowered, or the security is perceived
to have an increased credit risk. An increase in the spread will cause the price
of the security to decline.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
RISKS OF FOREIGN INVESTING
Foreign securities pose additional risks because foreign economic or political
conditions may be less favorable than those of the United States. Securities in
foreign markets may also be subject to taxation policies that reduce returns for
U.S. investors.
PREPAYMENT RISKS
Unlike traditional fixed income securities, which pay a fixed rate of interest
until maturity (when the entire principal amount is due), payments on asset
backed securities include both interest and a partial payment of principal.
Partial payment of principal may be comprised of scheduled principal payments as
well as unscheduled payments from the voluntary prepayment, refinancing, or
foreclosure of the underlying loans. If the Fund receives unscheduled
prepayments, it may have to reinvest the proceeds in other fixed income
securities with lower interest rates, higher credit risks, or other less
favorable characteristics.
FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is current income consistent with the
stability of principal and liquidity.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the Investment Company Act of 1940.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
INVESTING IN REAL ESTATE
The Fund may not purchase or sell real estate, provided that this restriction
does not prevent the Fund from investing in issuers which invest, deal, or
otherwise engage in transactions in real estate or interests therein, or
investing in securities that are secured by real estate or interests therein.
The Fund may exercise its rights under agreements relating to such securities,
including the right to enforce security interests and to hold real estate
acquired by reason of such enforcement until that real estate can be liquidated
in an orderly manner.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT OF 1940. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate 10% of the Fund's net assets.
INVESTING IN RESTRICTED SECURITIES
The Fund may invest in securities subject to restrictions on resale under
federal securities laws.
For purposes of the diversification limitation, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
In applying the Fund's concentration limitation: (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to end users of their
services, for example, automobile finance, bank finance and diversified finance
will each be considered a separate industry; and (c) asset-backed securities
will be classified according to the underlying assets securing such securities.
To conform to the current view of the SEC staff that only domestic bank
instruments may be excluded from industry concentration limitations, as a matter
of non-fundamental policy, the Fund will not exclude foreign bank instruments
from industry concentration tests as long as the policy of the SEC remains in
effect.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7 (the Rule), which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments according to the Rule. The Fund may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in the Rule. Under the Rule,
the Board must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and redemption,
at $1.00 per share, taking into account current market conditions and the Fund's
investment objective. The procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share based upon
available indications of market value. The Board will decide what, if any, steps
should be taken if there is a difference of more than 0.5 of 1% between the two
values. The Board will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to minimize any
material dilution or other unfair results arising from differences between the
two methods of determining net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous,
best-efforts basis.
RULE 12B-1 PLAN
As a reimbursement-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund reimburses the Distributor only for those payments made to investment
professionals up to the maximum Rule 12b-1 Plan fee. The Distributor may seek
reimbursement in following years for any unreimbursed expenses permitted under
the Plan. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing
distribution-related or shareholder services such as sponsoring sales, providing
sales literature, conducting training seminars for employees, and engineering
sales-related computer software programs and systems. Also, investment
professionals may be paid cash or promotional incentives, such as reimbursement
of certain expenses relating to attendance at informational meetings about the
Fund or other special events at recreational-type facilities, or items of
material value. These payments will be based upon the amount of Shares the
investment professional sells or may sell and/or upon the type and nature of
sales or marketing support furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccount-ing fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote.
All Shares of the Corporation have equal voting rights, except that in matters
affecting only a particular Fund or class, only Shares of that Fund or class are
entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of September 10, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: BHC Securities, Inc.,
Philadelphia, PA owned approximately 525,426,424 Shares (11.34%); Primevest
Financial Services, St. Cloud, MN owned approximately 490,625,915 Shares
(10.59%); and Scott & Stringfellow, Inc., Richmond, VA owned approximately
238,966,296 Shares (5.16%).
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's: name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of September 10, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the
Birth Date: July 28, 1924 and Director or Trustee of Corporation and
Federated Investors Tower the Federated Fund 54 other investment companies
1001 Liberty Avenue Complex; Chairman and in the Fund Complex
Pittsburgh, PA Director, Federated
CHAIRMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment Management
Company; Chairman and Director, Federated
Investment Counseling and Federated Global
Investment Management Corp.; Chairman, Passport
Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: February 3, 1934 Complex; Director, Member of Executive Corporation and
15 Old Timber Trail Committee, Children's Hospital of Pittsburgh; 54 other investment companies
Pittsburgh, PA Director, Robroy Industries, Inc. (coated steel in the Fund Complex
DIRECTOR conduits/computer storage equipment);
formerly: Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc. (physician
practice management); Director, Member of
Executive Committee, University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $5,227.03 $125,264.48 for the
Birth Date: June 23, 1937 Complex; President, Investment Properties Corporation and
Wood/ Commercial Dept. Corporation; Senior Vice President, 54 other investment companies
John R. Wood Associates, Inc. Realtors John R. Wood and Associates, Inc., Realtors; in the Fund Complex
3255 Tamiami Trail North Partner or Trustee in private real estate ventures
Naples, FL in Southwest Florida; formerly: President,
DIRECTOR Naples Property Management, Inc. and
Northgate Village Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of some of the Federated $4,751.22 $47,958.02 for the
Birth Date: September 3, 1939 Fund Complex; formerly: Partner, Andersen Corporation and
175 Woodshire Drive Worldwide SC. 29 other investment companies
Pittsburgh, PA in the Fund Complex
DIRECTOR
JOHN F. CUNNINGHAM++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: March 5, 1943 Fund Complex; Chairman, President and Chief Corporation and
353 El Brillo Way Executive Officer, Cunningham & Co., Inc. 46 other investment companies
Palm Beach, FL (strategic business consulting); Trustee in the Fund Complex
DIRECTOR Associate, Boston College; Director, Iperia Corp
(communications/software); formerly: Director,
Redgate Communications and EMC
Corporation (computer storage systems).
Previous Positions: Chairman of the Board and
Chief Executive Officer, Computer Consoles,
Inc.; President and Chief Operating Officer,
Wang Laboratories; Director, First National
Bank of Boston; Director, Apollo Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: October 11, 1932 Complex; Professor of Medicine, University of Corporation and
3471 Fifth Avenue Pittsburgh; Medical Director, University of 54 other investment companies
Suite 1111 Pittsburgh Medical Center-Downtown; in the Fund Complex
Pittsburgh, PA Hematologist, Oncologist, and Internist,
DIRECTOR University of Pittsburgh Medical Center;
Member, National Board of Trustees, Leukemia
Society of America.
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
PETER E. MADDEN Director or Trustee of the $4,209.51 $113,860.22 for the
Birth Date: March 16, 1942 Federated Fund Complex; Corporation and
One Royal Palm Way formerly: Representative, 54 other investment companies
100 Royal Palm Way Commonwealth of in the Fund Complex
Palm Beach, FL Massachusetts General
DIRECTOR Court; President, State
Street Bank and Trust
Company and State Street
Corporation.
Previous Positions:
Director, VISA USA and VISA
International; Chairman
and Director,
Massachusetts Bankers
Association; Director,
Depository Trust
Corporation; Director, The
Boston Stock Exchange.
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some of the Federated $2,408.31 $0 for the
Birth Date: April 10, 1945 Fund Complex; Management Consultant. Corporation and
80 South Road Previous Positions: Chief Executive Officer, 50 other investment companies
Westhampton Beach, NY PBTC International Bank; Partner, Arthur Young in the Fund Complex
DIRECTOR & Company (now Ernst & Young LLP); Chief
Financial Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., Director or Trustee of the Federated Fund $4,992.37 $113,860.22 for the
J.D., S.J.D.# Complex; President, Law Professor, Duquesne Corporation and
Birth Date: December 20, 1932 University; Consulting Partner, Mollica & 54 other investment companies
President, Duquesne University Murray; Director, Michael Baker Corp. in the Fund Complex
Pittsburgh, PA (engineering, construction, operations, and
DIRECTOR technical services).
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean
and Professor of Law, Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: June 21, 1935 Complex; Public Relations/Marketing/ Corporation and
4905 Bayard Street Conference Planning. 54 other investment companies
Pittsburgh, PA Previous Positions: National Spokesperson, in the Fund Complex
DIRECTOR Aluminum Company of America; television
producer, business owner.
JOHN S. WALSH++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: November 28, 1957 Fund Complex; President and Director, Heat Corporation and
2007 Sherwood Drive Wagon, Inc. (manufacturer of construction 48 other investment companies
Valparaiso, IN temporary heaters); President and Director, in the Fund Complex
DIRECTOR Manufacturers Products, Inc. (distributor of
portable construction heaters); President,
Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway contractor); formerly:
Vice President, Walsh & Kelly, Inc.
J. CHRISTOPHER DONAHUE+* President or Executive Vice President of the $0 $0 for the
Birth Date: April 11, 1949 Federated Fund Complex; Director or Trustee of Corporation and
Federated Investors Tower some of the Funds in the Federated Fund 16 other investment companies
1001 Liberty Avenue Complex; President, CEO and Director, in the Fund Complex
Pittsburgh, PA Federated Investors, Inc.; President and Trustee,
EXECUTIVE VICE PRESIDENT Federated Investment Management Company;
AND DIRECTOR President and Trustee, Federated Investment
Counseling, President and Director, Federated
Global Investment Management Corp.; President,
Passport Research, Ltd.; Trustee, Federated
Shareholder Services Company; Director, Federated
Services Company.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the $0 $0 for the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Corporation and
Federated Investors Tower Vice President and Treasurer of some of the 1 other investment company
1001 Liberty Avenue Funds in the Federated Fund Complex; Vice in the Fund Complex
Pittsburgh, PA Chairman, Federated Investors, Inc.; Vice
EXECUTIVE VICE PRESIDENT President, Federated Investment Management
Company, Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN W. MCGONIGLE Executive Vice President $0 $0 for the
Birth Date: October 26, 1938 and Secretary of the Corporation and
Federated Investors Tower Federated Fund Complex; 54 other investment companies
1001 Liberty Avenue Executive Vice President, in the Fund Complex
Pittsburgh, PA Secretary, and Director,
EXECUTIVE VICE PRESIDENT Federated Investors, Inc.;
AND SECRETARY Trustee, Federated
Investment Management Company; Trustee, Federated
Investment Counseling and Director, Federated
Global Investment Management Corp.; Director,
Federated Services Company; Director, Federated
Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice $0 $0 for the
Birth Date: June 17, 1954 President-Funds Financial Services Division, Corporation and
Federated Investors Tower Federated Investors, Inc.; formerly: various 54 other investment companies
1001 Liberty Avenue management positions within Funds Financial in the Fund Complex
Pittsburgh, PA Services Division of Federated Investors, Inc.
TREASURER
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birth Date: May 17, 1923 Funds in the Federated Fund Complex; Director Corporation and
Federated Investors Tower or Trustee of some of the Funds in the 6 other investment companies
1001 Liberty Avenue Federated Fund Complex; Executive Vice in the Fund Complex
Pittsburgh, PA President, Federated Investors, Inc.; Chairman
PRESIDENT and Director, Federated Securities Corp.
WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the
Birth Date: March 3, 1949 various other Funds in the Federated Fund Corporation and
Federated Investors Tower Complex; Executive Vice President, Federated 41 other investment companies
1001 Liberty Avenue Investment Counseling, Federated Global in the Fund Complex
Pittsburgh, PA Investment Management Corp., Federated
CHIEF INVESTMENT OFFICER Investment Management Company and
Passport Research, Ltd.; Registered
Representative, Federated Securities Corp.;
Portfolio Manager, Federated Administrative
Services; Vice President, Federated Investors,
Inc.; formerly: Executive Vice President and
Senior Vice President, Federated Investment
Counseling Institutional Portfolio Management
Services Division; Senior Vice President,
Federated Investment Management Company
and Passport Research, Ltd.
DEBORAH A. CUNNINGHAM Deborah A. Cunningham has been the Fund's $0 $0 for the
Birth Date: September 15, 1959 portfolio manager since August 1989. She is Vice Corporation and
Federated Investors Tower President of the Corporation. Ms. Cunningham 6 other investment companies
1001 Liberty Avenue joined Federated in 1981 and has been a Senior in the Fund Complex
Pittsburgh, PA Portfolio Manager and a Senior Vice President of
VICE PRESIDENT the Fund's Adviser since 1997. Ms. Cunningham
served as a Portfolio Manager and a Vice
President of the Adviser from 1993 until 1996.
Ms. Cunningham is a Chartered Financial Analyst
and received her M.B.A. in Finance from Robert
Morris College.
MARY JO OCHSON Mary Jo Ochson is Vice President of the $0 $0 for the
Birth Date: September 12, 1953 Corporation. Ms. Ochson joined Federated in Corporation and
Federated Investors Tower 1982 and has been a Senior Portfolio Manager 7 other investment companies
1001 Liberty Avenue and a Senior Vice President of the Fund's in the Fund Complex
Pittsburgh, PA Adviser since 1996. From 1988 through 1995,
VICE PRESIDENT Ms. Ochson served as a Portfolio Manager and
a Vice President of the Fund's Adviser.
Ms. Ochson is a Chartered Financial Analyst
and received her M.B.A. in Finance from the
University of Pittsburgh.
</TABLE>
* An asterisk denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings.
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Director of the Corporation.
++ Messrs. Cunningham, Mansfield and Walsh became members of the Board of
Directors on January 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED
FUNDS 0.150 of 1% on the first $250 million 0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million 0.075 of 1% on assets in excess of $750
million
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio. Federated Services Company may voluntarily waive a
portion of its fee and may reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus
out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountant for the Fund, Deloitte & Touche LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
FOR THE YEAR ENDED MAY 31 1999 1998 1997
Advisory Fee Earned $21,092,710 $15,717,524 $10,596,936
Advisory Fee Reduction 6,770,854 5,759,049 4,185,437
Administrative Fee 3,180,781 2,371,597 1,601,019
12B-1 FEE 4,218,542 - -
SHAREHOLDER SERVICES FEE 10,546,355 - -
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and Start of Performance periods
ended May 31, 1999.
Yield and Effective Yield given for the 7-day period ended May 31, 1999.
START OF PERFORMANCE
7-DAY PERIOD 1 YEAR 5 YEARS ON 8/15/89
Total Return NA 4.46% 4.69% 4.74%
Yield 4.03% NA NA NA
Effective Yield 4.11% NA NA NA
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated by: determining
the net change in the value of a hypothetical account with a balance of one
Share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional Shares purchased with
dividends earned from the original one Share and all dividends declared on the
original and any purchased Shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7. The effective yield is calculated by compounding the unannualized base
period return by: adding one to the base-period return, raising the sum to the
365/7th power; and subtracting one from the result.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit and
Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
IBC/DONOGHUE'S MONEY FUND REPORT
IBC/Donoghue's Money Fund Report publishes annualized yields of money market
funds weekly. Donoghue's Money Market Insight publication reports monthly and
12-month-to-date investment results for the same money funds.
MONEY
Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional
clients nationwide by managing and servicing separate accounts and mutual funds
for a variety of purposes, including defined benefit and defined contribution
programs, cash management, and asset/liability management. Institutional clients
include corporations, pension funds, tax exempt entities,
foundations/endowments, insurance companies, and investment and financial
advisers. The marketing effort to these institutional clients is headed by John
B. Fisher, President, Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by
Timothy C. Pillion, Senior Vice President, Bank Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended May 31, 1999 are
incorporated herein by reference to the Annual Report to Shareholders of Prime
Cash Series dated May 31, 1999.
Addresses
PRIME CASH SERIES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Treasury Cash Series
A Portfolio of Cash Trust Series, Inc.
A money market mutual fund seeking current income consistent with stability of
principal and liquidity by investing primarily in a portfolio of U.S. Treasury
securities maturing in 397 days or less.
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
SEPTEMBER 30, 1999
CONTENTS
Risk/Return Summary 1
What are the Fund's Fees and Expenses? 3
What are the Fund's Investment Strategies? 4
What are the Principal Securities in Which the
Fund Invests? 5
What are the Specific Risks of Investing in the Fund? 5
What Do Shares Cost? 6
How is the Fund Sold? 7
How to Purchase Shares 7
How to Redeem Shares 9
Account and Share Information 12
Who Manages the Fund? 13
Last Meeting of Shareholders 14
Financial Information 16
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund that seeks to maintain a stable net asset value
of $1.00 per share. The Fund's investment objective is current income consistent
with stability of principal and liquidity. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the strategies and policies described in this prospectus.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
The Fund invests primarily in a portfolio of U.S. Treasury securities maturing
in 397 days or less. These investments include repurchase agreements
collateralized fully by U.S. Treasury securities. The dollar-weighted average
maturity of the Fund's portfolio will be 90 days or less.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
All mutual funds take investment risks. Therefore, even though the Fund is a
money market fund that seeks to maintain a stable net asset value, it is
possible to lose money by investing in the Fund. The Shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency.
RISK/RETURN BAR CHART AND TABLE
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Treasury Cash Series as of the calendar year-end for
each of eight years.
The `y' axis reflects the "% Total Return" beginning with "0.00%" and increasing
in increments of 1.50% up to 6.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features eight distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1991
through 1998. The percentages noted are: 5.23%, 2.94%, 2.26%, 3.28%, 5.06%,
4.49%, 4.64%, and 4.53%, respectively.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 1.91%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.47% (quarter ended March 31, 1991). Its lowest quarterly return was 0.55%
(quarter ended June 30, 1993).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 4.53%
5 Years 4.40%
Start of Performance 1 4.41%
</TABLE>
1 The Fund's start of performance date was February 7, 1990.
The Fund's 7-Day Net Yield as of December 31, 1998 was 3.94%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are the Fund's Fees and Expenses?
TREASURY CASH SERIES
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Fund.
<TABLE>
<CAPTION>
SHAREHOLDER FEES
<S> <C>
Fees Paid Directly From Your Investment
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) None Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or redemption proceeds, as
applicable) None Maximum Sales Charge (Load) Imposed on Reinvested Dividends
(and other Distributions) (as a percentage of offering price) None Redemption
Fee (as a percentage of amount redeemed, if applicable) None Exchange Fee None
ANNUAL FUND OPERATING
EXPENSES (Before Waiver and Reduction) 1
Expenses That are Deducted From Fund Assets (as a percentage of average net assets)
Management Fee 2 0.50%
Distribution (12b-1) Fee 3 0.35%
Shareholder Services Fee 0.25%
Other Expenses 0.22%
Total Annual Fund
Operating Expenses 1.32%
1 Although not contractually obligated to do so, the adviser waived certain
amounts and the distributor elected not to accrue a portion of its distribution
(12b-1) fee. These are shown below along with the net expenses the Fund actually
paid for the fiscal year ended May 31, 1999.
Total Waivers and Reductions of Fund Expenses 0.32%
Total Actual Annual Fund Operating Expenses (after waiver and reduction) 1.00%
2 The adviser voluntarily waived a portion of the management fee during the
fiscal year ended May 31, 1999. The adviser can terminate this voluntary waiver
at any time. The management fee paid by the Fund's Shares (after the voluntary
waiver) was 0.43% for the fiscal year ended May 31, 1999. 3 The distributor
voluntarily elected not to accrue a portion of its distribution (12b-1) fee
during the fiscal year ended May 31, 1999. The distributor can terminate this
voluntary reduction at any time. The distribution (12b-1) fee paid by the Fund
(after the voluntary reduction) was 0.10% for the fiscal year ended May 31,
1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund's
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund's Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Fund's Shares' operating expenses are BEFORE WAIVERS AND REDUCTIONS
as shown in the Table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C>
1 Year $ 135
3 Years $ 421
5 Year $ 729
10 Years $ 1,601
</TABLE>
What are the Fund's Investment Strategies?
The Fund invests at least 65% of its total assets in a portfolio of U.S.
Treasury securities maturing in 397 days or less. These investments include
repurchase agreements collateralized fully by U.S. Treasury securities. The
dollar-weighted average maturity of the Fund's portfolio will be 90 days or
less.
The Fund's investment adviser (Adviser) targets a dollar-weighted average
portfolio maturity range based upon its interest rate outlook. The Adviser
formulates its interest rate outlook by analyzing a variety of factors, such as:
* current U.S. economic activity and the economic outlook;
* current short-term interest rates;
* the Federal Reserve Board's policies regarding short-term interest
rates; and
* the potential effects of foreign economic activity on U.S. short-term
interest rates.
The Adviser generally shortens the portfolio's dollar-weighted average maturity
when it expects interest rates to rise and extends the maturity when it expects
interest rates to fall. The Adviser selects securities used to shorten or extend
the portfolio's dollar-weighted average maturity by comparing the returns
currently offered by different investments to their historical and expected
returns.
What are the Principal Securities in Which the Fund Invests?
U.S. TREASURY SECURITIES
U.S. Treasury securities are direct obligations of the federal government
of the United States. U.S. Treasury securities pay interest, dividends or
distributions at a specified rate. The rate may be a fixed percentage of
the principal or adjusted periodically. In addition, the U.S. Treasury
must repay the principal amount of the security, normally within a
specified time.
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser. Repurchase agreements are subject
to credit risks.
What are the Specific Risks of Investing in the Fund?
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISK
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. The Fund attempts to stabilize the net asset value (NAV) of its Shares at
$1.00 by valuing the portfolio securities using the amortized cost method. The
Fund cannot guarantee that its NAV will always remain at $1.00 per Share. The
Fund does not charge a front-end sales charge. NAV is determined at 12:00 noon
and 3:00 p.m. (Eastern time) and as of the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment for Fund Shares is $10,000. The required
minimum subsequent investment amount is $500. The minimum initial and subsequent
investment amounts for retirement plans are $250 and $100, respectively.
An institutional investor's minimum investment is calculated by combining all
accounts it maintains with the Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
How is the Fund Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions such as banks,
fiduciaries, custodians of public funds, investment advisers and broker/dealers,
or individuals, directly or through investment professionals.
When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Fund has adopted a Rule 12b-1 Plan, which allows it to pay marketing fees to
the Distributor and investment professionals for the sale, distribution and
customer servicing of the Fund's Shares. Because these Shares pay marketing fees
on an ongoing basis, your investment cost may be higher over time than other
shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Fund. The Fund reserves the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when the Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUND
* Establish your account with the Fund by submitting a completed New
Account Form; and
* Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling the Fund
and will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Fund or your investment
professional. The minimum investment amount for SIPs is $50.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from the Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUND
BY TELEPHONE
You may redeem Shares by calling the Fund at 1-800-341-7400 once you have
completed the appropriate authorization form for telephone transactions.
If you call before 3:00 p.m. (Eastern time), your redemption will be wired to
you the same day. You will not receive that day's dividend.
If you call after 3:00 p.m. (Eastern time), your redemption will be wired to you
the following business day. You will receive that day's dividend. Under limited
circumstances, arrangements may be made with the Distributor for same-day
payment of redemption proceeds, without that day's dividend, for redemption
requests received before 2:00 p.m. (Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to the Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed.
Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although the Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts the Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from the Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or the Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your Fund Shares. Your account will continue to
receive the daily dividend declared on the Shares being redeemed until the check
is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares. There is
an annual fee for this service that the Fund will automatically deduct from your
account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Fund will record your telephone instructions. If the Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Fund no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by the Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Fund declares any dividends daily and pays them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund pays any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non- retirement
accounts may be closed if redemptions cause the account balance to fall below
the minimum initial investment amount. Before an account is closed, you will be
notified and allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Fund sends an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
Who Manages the Fund?
The Board of Directors governs the Fund. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Fund's
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of the Fund's
average daily net assets The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or may experience other date-related problems. The Year 2000 problem may
cause systems to process information incorrectly and could disrupt businesses,
such as the Fund, that rely on computers.
While it is impossible to determine in advance all of the risks to the Fund, the
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Fund's service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Fund's investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Fund
may purchase. The financial impact of these issues for the Fund is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Fund.
Last Meeting of Shareholders
An Annual Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholders voting at the meeting, there were
992,887,496 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
John F. Cunningham 683,401,762 10,197,449
Charles F. Mansfield, Jr. 683,403,331 10,195,880
John S. Walsh 683,403,331 10,195,880
</TABLE>
1 The following Directors continued their terms as Directors of the
Company: John F. Donahue, Thomas G. Bigley, John T. Conroy, Jr., Nicholas
Constantakis, Lawrence D. Ellis, M.D., Peter E. Madden, John E. Murray,
Jr., J.D., S.J.D., Marjorie P. Smuts, and J. Christopher Donahue.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the Company's independent
auditors:
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
681,325,021 2,362,048 9,912,142
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(a) To amend the Fund's fundamental investment policy on diversification of its
investments.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
499,890,115 9,509,001 19,571,489 164,628,606
</TABLE>
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,935,411 10,410,573 19,571,489 164,681,738
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,131,340 11,363,897 19,571,490 164,532,484
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,700,114 10,252,530 19,571,489 165,075,078
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,998,744 10,365,579 19,571,489 164,663,399
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
500,936,056 9,147,809 19,571,489 163,943,857
</TABLE>
(g) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
499,015,104 9,368,730 19,571,489 165,643,888
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
474,854,650 10,122,093 19,571,489 189,050,979
</TABLE>
(i) To make non-fundamental the Fund's fundamental investment policy on
investing in restricted securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
474,824,853 10,061,260 19,571,489 189,141,609
</TABLE>
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
473,329,563 11,896,774 19,571,490 188,801,384
</TABLE>
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
497,372,856 12,278,077 19,571,489 164,376,789
</TABLE>
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in the Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose report, along
with the Fund's audited financial statements, is included in the Annual Report.
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.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Treasury Cash Series
A Portfolio of Cash Trust Series, Inc.
SEPTEMBER 30, 1999
A Statement of Additional Information (SAI), dated September 30, 1999, is
incorporated by reference into this prospectus. Additional information about the
Fund and its investments is contained in the Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual Report
discusses market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year. To obtain the SAI,
the Annual Report, the Semi-Annual Report and other information without charge,
and make inquiries, call your investment professional or the Fund at
1-800-341-7400.
You can obtain information about the Fund (including the SAI) by writing to or
visiting the Public Reference Room in Washington, D.C. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by e-mail at [email protected] or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102. Call 1-202- 942-8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
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
Investment Company Act File No. 811-5843
Cusip147551402
0010801A (9/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Treasury Cash Series
A Portfolio of Cash Trust Series, Inc.
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Treasury Cash Series (Fund), dated
September 30, 1999. This SAI incorporates by reference the Fund's Annual Report.
Obtain the prospectus or the Annual Report without charge by calling
1-800-341-7400.
SEPTEMBER 30, 1999
[Graphic]
Federated
World-Class Investment Manager
Treasury Cash Series
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
0010801B (9/99)
[Graphic]
CONTENTS
How is the Fund Organized? 1
Securities in Which the Fund Invests 1
How is the Fund Sold? 4
Subaccounting Services 4
Redemption in Kind 4
Account and Share Information 4
Tax Information 5
Who Manages and Provides Services to the Fund? 5
How Does the Fund Measure Performance? 8
Who is Federated Investors, Inc.? 10
Financial Information 11
Addresses 11
How is the Fund Organized?
The Fund is a diversified portfolio of Cash Trust Series, Inc. (Corporation).
The Corporation, an open-end, management investment company, was originally
organized as a Massachusetts business trust under the laws of the Commonwealth
of Massachusetts on May 16, 1989. It was reorganized under the laws of the State
of Maryland on February 1, 1993. The Corporation may offer separate series of
shares representing interests in separate portfolios of securities.
The Fund's investment adviser is Federated Investment Management Company
(Adviser). The Adviser, formerly known as Federated Advisers, changed its name
effective March 31, 1999.
Securities in Which the Fund Invests
The Fund's principal securities are described in its prospectus. Additional
securities, and further information regarding the principal securities, are
outlined below. In pursuing its investment strategy, the Fund may invest in such
securities for any purpose that is consistent with its investment objective.
SECURITIES DESCRIPTIONS AND TECHNIQUES
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which the Fund
invests.
U.S. TREASURY SECURITIES
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the lowest
credit risks.
ZERO COUPON SECURITIES
Zero coupon securities do not pay interest or principal until final maturity
unlike debt securities that provide periodic payments of interest (referred to
as a coupon payment). Investors buy zero coupon securities at a price below the
amount payable at maturity. The difference between the purchase price and the
amount paid at maturity represents interest on the zero coupon security.
Investors must wait until maturity to receive interest and principal, which
increases the INTEREST RATE and CREDIT RISKS of a zero coupon security.
There are many forms of zero coupon securities. Some are issued at a discount
and are referred to as zero coupon or capital appreciation bonds. Others are
created from interest bearing bonds by separating the right to receive the
bond's coupon payments from the right to receive the bond's principal due at
maturity, a process known as coupon stripping. In addition, some securities give
the issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are referred
to as pay-in-kind or PIK securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
SPECIAL TRANSACTIONS
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which the Fund buys a security from a
dealer or bank and agrees to sell the security back at a mutually agreed upon
time and price. The repurchase price exceeds the sale price, reflecting the
Fund's return on the transaction. This return is unrelated to the interest rate
on the underlying security. The Fund will enter into repurchase agreements only
with banks and other recognized financial institutions, such as securities
dealers, deemed creditworthy by the Adviser.
The Fund's custodian or subcustodian will take possession of the securities
subject to repurchase agreements. The Adviser or subcustodian will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
Repurchase agreements are subject to credit risks.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are repurchase agreements in which the Fund is the
seller (rather than the buyer) of the securities, and agrees to repurchase them
at an agreed upon time and price. A reverse repurchase agreement may be viewed
as a type of borrowing by the Fund. Reverse repurchase agreements are subject to
credit risks. In addition, reverse repurchase agreements create leverage risks
because the Fund must repurchase the underlying security at a higher price,
regardless of the market value of the security at the time of repurchase.
DELAYED DELIVERY TRANSACTIONS
Delayed delivery transactions, including when issued transactions, are
arrangements in which the Fund buys securities for a set price, with payment and
delivery of the securities scheduled for a future time. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. The Fund records the transaction when it
agrees to buy the securities and reflects their value in determining the price
of its shares. Settlement dates may be a month or more after entering into these
transactions so that the market values of the securities bought may vary from
the purchase prices. Therefore, delayed delivery transactions create interest
rate risks for the Fund. Delayed delivery transactions also involve credit risks
in the event of a counterparty default.
ASSET COVERAGE
In order to secure its obligations in connection with special transactions, the
Fund will either own the underlying assets, enter into an offsetting transaction
or set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets to
set aside, it cannot trade assets used to secure such obligations without
entering into an offsetting transaction or terminating the special transaction.
This may cause the Fund to miss favorable trading opportunities or to realize
losses on special transactions.
INVESTMENT RISKS
There are many factors which may affect an investment in the Fund. The Fund's
principal risks are described in its prospectus. Additional risk factors are
outlined below.
CREDIT RISKS
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money.
LEVERAGE RISKS
Leverage risk is created when an investment exposes the Fund to a level of risk
that exceeds the amount invested. Changes in the value of such an investment
magnify the Fund's risk of loss and potential for gain.
FUNDAMENTAL INVESTMENT OBJECTIVE
The investment objective of the Fund is current income consistent with stability
of principal and liquidity. This investment objective cannot be changed without
shareholder approval.
INVESTMENT LIMITATIONS
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund may borrow money, directly or indirectly, and issue senior securities
to the maximum extent permitted under the 1940 Act.
LENDING CASH OR SECURITIES
The Fund may not make loans, provided that this restriction does not prevent the
Fund from purchasing debt obligations, entering into repurchase agreements,
lending its assets to broker/dealers or institutional investors and investing in
loans, including assignments and participation interests.
(The Fund has no present intention of engaging in securities lending.)
INVESTING IN COMMODITIES
The Fund may not purchase or sell physical commodities, provided that the Fund
may purchase securities of companies that deal in commodities.
UNDERWRITING
The Fund may not underwrite the securities of other issuers, except that the
Fund may engage in transactions involving the acquisition, disposition or resale
of its portfolio securities, under circumstances where it may be considered to
be an underwriter under the Securities Act of 1933.
CONCENTRATION OF INVESTMENTS
The Fund will not make investments that will result in the concentration of its
investments in the securities of issuers primarily engaged in the same industry.
Government securities, municipal securities and bank instruments will not be
deemed to constitute an industry.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total assets, the
Fund will not purchase securities of any one issuer (other than cash, cash
items, or securities issued or guaranteed by the government of the United States
or its agencies or instrumentalities and repurchase agreements collateralized by
such U.S. government securities; and securities of other investment companies)
if, as a result, more than 5% of the value of its total assets would be invested
in the securities of that issuer, or the Fund would own more than 10% of the
outstanding voting securities of that issuer.
THE ABOVE LIMITATIONS CANNOT BE CHANGED UNLESS AUTHORIZED BY THE BOARD OF
DIRECTORS (BOARD) AND BY THE "VOTE OF A MAJORITY OF ITS OUTSTANDING VOTING
SECURITIES," AS DEFINED BY THE INVESTMENT COMPANY ACT OF 1940. THE FOLLOWING
LIMITATIONS, HOWEVER, MAY BE CHANGED BY THE BOARD WITHOUT SHAREHOLDER APPROVAL.
SHAREHOLDERS WILL BE NOTIFIED BEFORE ANY MATERIAL CHANGE IN THESE LIMITATIONS
BECOMES EFFECTIVE.
BUYING SECURITIES ON MARGIN
The Fund will not purchase securities on margin, provided that the Fund may
obtain short-term credits necessary for the clearance of purchases and sales of
securities.
INVESTING IN ILLIQUID SECURITIES
The Fund will not purchase securities for which there is no readily available
market, or enter into repurchase agreements or purchase time deposits maturing
in more than seven days, if immediately after and as a result, the value of such
securities would exceed, in the aggregate, 10% of the Fund's net assets.
INVESTING IN RESTRICTED SECURITIES
The Fund will not purchase or sell securities which are restricted as to resale
under federal securities law.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any of its assets, provided
that this shall not apply to the transfer of securities in connection with any
permissible borrowing or to collateral arrangements in connection with
permissible activities.
For purposes of the diversification limitation, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings association having capital, surplus, and undivided profits in
excess of $100,000,000 at the time of investment to be "cash items."
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
limitation.
In applying the Fund's concentration limitation, (a) utility companies will be
divided according to their services, for example, gas, gas transmission,
electric and telephone will each be considered a separate industry; (b)
financial service companies will be classified according to the end users of
their services, for example, automobile finance, bank finance and diversified
finance will each be considered a separate industry; and (c) asset-backed
securities will be classified according to the underlying assets securing such
securities. To conform to the current view of the Securities and Exchange
Commission (SEC) staff that only domestic bank instruments may be excluded from
industry concentration limitations, the Fund will not exclude foreign bank
instruments from industry concentration tests as long as the policy of the SEC
remains in effect.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Fund will comply
with the various requirements of Rule 2a-7 (the Rule), which regulates money
market mutual funds. The Fund will determine the effective maturity of its
investments according to the Rule. The Fund may change these operational
policies to reflect changes in the laws and regulations without the approval of
its shareholders.
DETERMINING MARKET VALUE OF SECURITIES
The Board has decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Fund computed by dividing the annualized daily income on the Fund's portfolio by
the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in the Rule. Under the Rule,
the Board must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and redemption,
at $1.00 per share, taking into account current market conditions and the Fund's
investment objective. The procedures include monitoring the relationship between
the amortized cost value per share and the net asset value per share based upon
available indications of market value. The Board will decide what, if any, steps
should be taken if there is a difference of more than 0.5 of 1% between the two
values. The Board will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity) to minimize any
material dilution or other unfair results arising from differences between the
two methods of determining net asset value.
How is the Fund Sold?
Under the Distributor's Contract with the Fund, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN
As a reimbursement-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Fund achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Fund's service providers that receive asset-based fees also
benefit from stable or increasing Fund assets.
The Fund reimburses the Distributor only for those payments made to investment
professionals up to the maximum Rule 12b-1 Plan fee. The Distributor may seek
reimbursement in following years for any unreimbursed expenses permitted under
the Plan. In no event will the Fund pay for any expenses of the Distributor that
exceed the maximum Rule 12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES
The Fund may pay Federated Shareholder Services Company, a subsidiary of
Federated Investors, Inc. (Federated), for providing shareholder services and
maintaining shareholder accounts. Federated Shareholder Services Company may
select others to perform these services for their customers and may pay them
fees.
SUPPLEMENTAL PAYMENTS
Investment professionals may be paid fees out of the assets of the Distributor
and/or Federated Shareholder Services Company (but not out of Fund assets). The
Distributor and/or Federated Shareholder Services Company may be reimbursed by
the Adviser or its affiliates.
Investment professionals receive such fees for providing distribution- related
or shareholder services such as sponsoring sales, providing sales literature,
conducting training seminars for employees, and engineering sales-related
computer software programs and systems. Also, investment professionals may be
paid cash or promotional incentives, such as reimbursement of certain expenses
relating to attendance at informational meetings about the Fund or other special
events at recreational-type facilities, or items of material value. These
payments will be based upon the amount of Shares the investment professional
sells or may sell and/or upon the type and nature of sales or marketing support
furnished by the investment professional.
Subaccounting Services
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
Redemption in Kind
Although the Fund intends to pay Share redemptions in cash, it reserves the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Fund's portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Fund is obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Fund's Board determines that payment should be in kind. In such a
case, the Fund will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Fund determines its NAV. The
portfolio securities will be selected in a manner that the Fund's Board deems
fair and equitable and, to the extent available, such securities will be readily
marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
Account and Share Information
VOTING RIGHTS
Each Share of the Fund gives the shareholder one vote in Director elections and
other matters submitted to shareholders for vote. All Shares of the Corporation
have equal voting rights, except that in matters affecting only a particular
Fund or class, only Shares of that Fund or class are entitled to vote.
Directors may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Corporation's outstanding
shares of all series entitled to vote.
As of September 10, 1999, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares:
Compass Investment Services Corp., Melville, NY owned approximately 164,061,016
shares (17.07%); Scott & Stringfellow Inc., Richmond, VA owned approximately
154,950,486 shares (16.12%); BHC Securities Inc., Philadelphia, PA owned
approximately 107,624,923 shares (11.20%); and Manufacturers & Traders Trust
Co., Buffalo, NY owned approximately
61,611,297 shares (6.41%).
Tax Information
FEDERAL INCOME TAX
The Fund intends to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, it will not receive special tax treatment and will pay federal income tax.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Corporation's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF DIRECTORS
The Board is responsible for managing the Corporation's business affairs and for
exercising all the Corporation's powers except those reserved for the
shareholders. Information about each Board member is provided below and includes
each person's name, address, birth date, present position(s) held with the
Corporation, principal occupations for the past five years and positions held
prior to the past five years, total compensation received as a Director from the
Corporation for its most recent fiscal year, and the total compensation received
from the Federated Fund Complex for the most recent calendar year. The
Corporation is comprised of four funds and the Federated Fund Complex is
comprised of 54 investment companies, whose investment advisers are affiliated
with the Fund's Adviser.
As of September 10, 1999, the Fund's Board and Officers as a group owned less
than 1% of the Fund's outstanding Shares.
<TABLE>
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+# Chief Executive Officer $0 $0 for the
Birth Date: July 28, 1924 and Director or Trustee of Corporation and
Federated Investors Tower the Federated Fund 54 other investment
1001 Liberty Avenue Complex; Chairman and companies in the
Pittsburgh, PA Director, Federated Fund Complex
CHAIRMAN AND DIRECTOR Investors, Inc.; Chairman
and Trustee, Federated Investment
Management Company; Chairman and
Director, Federated Investment
Counseling and Federated Global
Investment Management Corp.; Chairman,
Passport Research, Ltd.
THOMAS G. BIGLEY Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: February 3, 1934 Complex; Director, Member of Executive Corporation and
15 Old Timber Trail Committee, Children's Hospital of 54 other investment
Pittsburgh, PA Pittsburgh;Director, Robroy Industries, Inc. companies in the
DIRECTOR (coated steel wire/computer storage Fund Complex
equipment); formerly: Senior Partner, Ernst &
Young LLP; Director, MED 3000 Group, Inc.
(physician practice management); Director,
Member of Executive Committee, University of
Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the Federated Fund $5,227.03 $125,264.48 for the
Birth Date: June 23, 1937 Complex; President, Investment Properties Corporation and
Wood Commercial Dept. Corporation; Senior Vice President, 54 other investment
John R. Wood Associates, Inc. companies in the
Realtors John R. Wood and Associates, Inc., Realtors; Fund Complex
3255 Tamiami Trail North Partner or Trustee in private real estate ventures
Naples, FL in Southwest Florida; formerly: President,
DIRECTOR Naples Property Management, Inc. and
Northgate Village Development Corporation.
NICHOLAS CONSTANTAKIS Director or Trustee of the Federated Fund $4,751.22 $47,958.02 for the
Birth Date: September 3, 1939 Complex; formerly: Partner, Andersen Corporation and
175 Woodshire Drive Worldwide SC. 39 other investment
Pittsburgh, PA companies in the
DIRECTOR Fund Complex
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. CUNNINGHAM++ Director or Trustee of some $2,408.40 $0 for the
Birth Date: March 5, 1943 of the Federated Fund Corporation and
353 El Brillo Way Complex; Chairman, 46 other investment
Palm Beach, FL President and Chief companies in the
DIRECTOR Executive Officer, Fund Complex
Cunningham & Co., Inc.
(strategic business
consulting); Trustee
Associate, Boston College;
Director, Iperia Corp.
(communications/software);
formerly: Director,
Redgate Communications and
EMC Corporation (computer
storage systems).
Previous Positions:
Chairman of the Board and
Chief Executive Officer,
Computer Consoles, Inc.;
President and Chief
Operating Officer, Wang
Laboratories; Director,
First National Bank of
Boston; Director, Apollo
Computer, Inc.
LAWRENCE D. ELLIS, M.D.* Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: October 11, 1932 Complex; Professor of Medicine, University of Corporation and
3471 Fifth Avenue Pittsburgh; Medical Director, University of 54 other investment
Suite 1111 Pittsburgh Medical Center - Downtown; companies in the
Pittsburgh, PA Hematologist, Oncologist, and Internist, Fund Complex
DIRECTOR University of Pittsburgh Medical Center;
Member, National Board of Trustees, Leukemia
Society of America.
PETER E. MADDEN Director or Trustee of the Federated Fund $4,209.51 $113,860.22 for the
Birth Date: March 16, 1942 Complex; formerly: Representative, Corporation and
One Royal Palm Way Commonwealth of Massachusetts General 54 other investment
100 Royal Palm Way Court; President, State Street Bank and Trust companies in the
Palm Beach, FL Company and State Street Corporation. Fund Complex
DIRECTOR Previous Positions: Director, VISA USA and
VISA International; Chairman and
Director, Massachusetts Bankers
Association; Director, Depository
Trust Corporation; Director, The
Boston Stock Exchange.
CHARLES F. MANSFIELD, JR.++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: April 10, 1945 Fund Complex; Management Consultant. Corporation and
80 South Road Previous Positions: Chief Executive Officer, 50 other investment
Westhampton Beach, NY DIRECTOR PBTC International Bank; Partner, Arthur Young companies in the
& Company (now Ernst & Young LLP); Chief Fund Complex
Financial Officer of Retail Banking Sector,
Chase Manhattan Bank; Senior Vice President,
Marine Midland Bank; Vice President, Citibank;
Assistant Professor of Banking and Finance,
Frank G. Zarb School of Business, Hofstra
University.
JOHN E. MURRAY, JR., J.D., S.J.D.# Director or Trustee of the Federated Fund $4,992.37 $113,860.22 for the
Birth Date: December 20, 1932 Complex; President, Law Professor, Duquesne Corporation and
President, Duquesne University University; Consulting Partner, Mollica & 54 other investment
Pittsburgh, PA Murray; Director, Michael Baker Corp. companies in the
DIRECTOR (engineering, construction, operations, and Fund Complex
technical services).
Previous Positions: Dean and Professor of Law,
University of Pittsburgh School of Law; Dean
and Professor of Law, Villanova University
School of Law.
MARJORIE P. SMUTS Director or Trustee of the Federated Fund $4,751.12 $113,860.22 for the
Birth Date: June 21, 1935 Complex; Public Relations/Marketing/ Corporation and
4905 Bayard Street Conference Planning 54 other investment
Pittsburgh, PA Previous Positions: National Spokesperson, companies in the
DIRECTOR Aluminum Company of America; television Fund Complex
producer; business owner.
JOHN S. WALSH++ Director or Trustee of some of the Federated $2,408.40 $0 for the
Birth Date: November 28, 1957 Fund Complex; President and Director, Heat Corporation and
2007 Sherwood Drive Wagon, Inc. (manufacturer of construction 48 other investment
Valparaiso, IN temporary heaters); President and Director, companies in the
DIRECTOR Manufacturers Products, Inc. (distributor of Fund Complex
portable construction heaters); President,
Portable Heater Parts, a division of
Manufacturers Products, Inc.; Director, Walsh &
Kelly, Inc. (heavy highway contractor); formerly:
Vice President, Walsh & Kelly, Inc.
<CAPTION>
NAME AGGREGATE TOTAL
BIRTH DATE COMPENSATION COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS FROM FROM CORPORATION
POSITION WITH CORPORATION FOR PAST FIVE YEARS CORPORATION AND FUND COMPLEX
<S> <C> <C> <C>
J. CHRISTOPHER DONAHUE+* President or Executive $0 $0 for the
Birth Date: April 11, 1949 Vice President of the Corporation and
Federated Investors Tower Federated Fund Complex; 22 other investment
1001 Liberty Avenue Director or Trustee of some companies in the
Pittsburgh, PA of the Funds in the Fund Complex
EXECUTIVE VICE PRESIDENT Federated Fund Complex;
AND DIRECTOR President, CEO and
Director, Federated Investors, Inc.;
President and Trustee, Federated
Investment Management Company;
President and Trustee, Federated
Investment Counseling; President and
Director, Federated Global Investment
Management Corp.; President, Passport
Research, Ltd.; Trustee, Federated
Shareholder Services Company;
Director, Federated Services Company.
EDWARD C. GONZALES Trustee or Director of some of the Funds in the $0 $0 for the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Corporation and
Federated Investors Tower Vice President and Treasurer of some of the 1 other investment
1001 Liberty Avenue Funds in the Federated Fund Complex; Vice company in the
Pittsburgh, PA Chairman, Federated Investors, Inc.; Vice Fund Complex
EXECUTIVE VICE PRESIDENT President, Federated Investment Management
Company, Federated Investment Counseling,
Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated
Securities Corp.; Trustee, Federated Shareholder
Services Company.
JOHN W. MCGONIGLE Executive Vice President and Secretary of the $0 $0 for the
Birth Date: October 26, 1938 Federated Fund Complex; Executive Vice Corporation and
Federated Investors Tower President, Secretary and Director, Federated 54 other investment
1001 Liberty Avenue Investors, Inc.; Trustee, Federated Investment companies in the
Pittsburgh, PA Management Company; Trustee, Federated Fund Complex
EXECUTIVE VICE PRESIDENT Investment Counseling and Director, Federated
AND SECRETARY Global Investment Management Corp.; Director,
Federated Services Company; Director,
Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated Fund Complex; Vice $0 $0 for the
Birth Date: June 17, 1954 President - Funds Financial Services Division, Corporation and
Federated Investors Tower Federated Investors, Inc.; formerly: various 54 other investment
1001 Liberty Avenue management positions within Funds Financial companies in the
Pittsburgh, PA Services Division of Federated Investors, Inc. Fund Complex
TREASURER
RICHARD B. FISHER President or Vice President of some of the $0 $0 for the
Birth Date: May 17, 1923 Funds in the Federated Fund Complex; Director Corporation and
Federated Investors Tower or Trustee of some of the Funds in the 6 other investment
1001 Liberty Avenue Federated Fund Complex; Executive Vice companies in the
Pittsburgh, PA President, Federated Investors, Inc.; Chairman Fund Complex
PRESIDENT and Director, Federated Securities Corp.
WILLIAM D. DAWSON, III Chief Investment Officer of this Fund and $0 $0 for the
Birth Date: March 3, 1949 various other Funds in the Federated Fund Corporation and
Federated Investors Tower Complex; Executive Vice President, Federated 41 other investment
1001 Liberty Avenue Investment Counseling, Federated Global companies in the
Pittsburgh, PA Investment Management Corp., Federated Fund Complex
CHIEF INVESTMENT OFFICER Investment Management Company and
Passport Research, Ltd.; Registered
Representative, Federated Securities
Corp.; Portfolio Manager, Federated
Administrative Services; Vice
President, Federated Investors, Inc.;
formerly: Executive Vice President and
Senior Vice President, Federated
Investment Counseling Institutional
Portfolio Management Services
Division; Senior Vice President,
Federated Investment Management
Company and Passport Research, Ltd.
DEBORAH A. CUNNINGHAM Deborah A. Cunningham has been the Fund's $0 $0 for the
Birth Date: September 15, 1959 portfolio manager since 1994. She is Vice Corporation and
Federated Investors Tower President of the Corporation. Ms. Cunningham 6 other investment
1001 Liberty Avenue joined Federated in 1981 and has been a Senior companies in the
Pittsburgh, PA Portfolio Manager and a Senior Vice President Fund Complex
VICE PRESIDENT of the Fund's Adviser since 1997.
Ms. Cunningham served as a Portfolio Manager
and a Vice President of the Adviser from 1993
until 1996. Ms. Cunningham is a Chartered
Financial Analyst and received her M.B.A. in
Finance from Robert Morris College.
MARY JO OCHSON Mary Jo Ochson is Vice President of the $0 $0 for the
Birth Date: September 12, 1953 Corporation. Ms. Ochson joined Federated in Corporation and
Federated Investors Tower 1982 and has been a Senior Portfolio Manager 7 other investment
1001 Liberty Avenue and a Senior Vice President of the Fund's companies in the
Pittsburgh, PA Adviser since 1996. From 1988 through 1995, Fund Complex
VICE PRESIDENT Ms. Ochson served as a Portfolio Manager and
a Vice President of the Fund's Adviser.
Ms. Ochson is a Chartered Financial Analyst
and received her M.B.A. in Finance from the
University of Pittsburgh.
</TABLE>
* An asterisk denotes a Director who is deemed to be an interested person as
defined in the Investment Company Act of 1940.
# A pound sign denotes a Member of the Board's Executive Committee, which
handles the Board's responsibilities between its meetings
+ Mr. Donahue is the father of J. Christopher Donahue, Executive Vice
President and Director of the Corporation.
++ Messrs. Cunningham, Mansfield and Walsh became members of the Board of
Directors on January 1, 1999. They did not earn any fees for serving the Fund
Complex since these fees are reported as of the end of the last calendar year.
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Fund.
The Adviser is a wholly owned subsidiary of Federated.
The Adviser shall not be liable to the Corporation or any Fund shareholder for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Corporation.
OTHER RELATED SERVICES
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. In selecting among firms believed to meet these
criteria, the Adviser may give consideration to those firms which have sold or
are selling Shares of the Fund and other funds distributed by the Distributor
and its affiliates. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Fund's Board.
Investment decisions for the Fund are made independently from those of other
accounts managed by the Adviser. When the Fund and one or more of those accounts
invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Fund and the account(s) in a
manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Fund, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Fund.
ADMINISTRATOR
Federated Services Company, a subsidiary of Federated, provides administrative
personnel and services (including certain legal and financial reporting
services) necessary to operate the Fund. Federated Services Company provides
these at the following annual rate of the average aggregate daily net assets of
all Federated Funds as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE FEDERATED FUNDS
<S> <C>
0.150 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.100 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of Shares.
Federated Services Company may voluntarily waive a portion of its fee and may
reimburse the Fund for expenses.
Federated Services Company also provides certain accounting and recordkeeping
services with respect to the Fund's portfolio investments for a fee based on
Fund assets plus out-of-pocket expenses.
CUSTODIAN
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund. Foreign instruments purchased by the Fund are
held by foreign banks participating in a network coordinated by State Street
Bank.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Fund pays the transfer agent a fee based on the size, type and
number of accounts and transactions made by
shareholders.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountant for the Fund, Deloitte & Touche LLP, plans and
performs its audit so that it may provide an opinion as to whether the Fund's
financial statements and financial highlights are free of material misstatement.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $4,821,924 $4,134,411 $3,518,991
Advisory Fee Reduction 710,477 424,670 233,279
Administrative Fee 727,146 623,879 531,651
12B-1 FEE 964,385 - -
SHAREHOLDER SERVICES FEE 2,410,962 - -
</TABLE>
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the SEC's standard method for
calculating performance applicable to all mutual funds. The SEC also permits
this standard performance information to be accompanied by non-standard
performance information.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Fund's or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
AVERAGE ANNUAL TOTAL RETURNS AND YIELD
Total returns given for the one-year, five-year and Start of Performance periods
ended May 31, 1999.
Yield and Effective Yield given for the 7-day period ended May 31, 1999.
<TABLE>
<CAPTION>
START OF
PERFORMANCE ON
7-DAY PERIOD 1 YEAR 5 YEARS FEBRUARY 7, 1990
<S> <C> <C> <C> <C>
Total Return NA 4.21% 4.51% 4.39%
Yield 3.83% NA NA NA
Effective Yield 3.90% NA NA NA
</TABLE>
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of Shares owned at the end of the period by
the NAV per Share at the end of the period. The number of Shares owned at the
end of the period is based on the number of Shares purchased at the beginning of
the period with $1,000, less any applicable sales charge, adjusted over the
period by any additional Shares, assuming the annual reinvestment of all
dividends and distributions.
YIELD AND EFFECTIVE YIELD
The yield of Shares is based upon the seven days ending on the day of the
calculation, called the "base period." This yield is calculated by: determining
the net change in the value of a hypothetical account with a balance of one
Share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional Shares purchased with
dividends earned from the original one Share and all dividends declared on the
original and any purchased Shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base-period return; and multiplying the base-period return by
365/7. The effective yield is calculated by compounding the unannualized
base-period return by: adding one to the base-period return, raising the sum to
the 365/7th power; and subtracting one from the result.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
* references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
* charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment;
* discussions of economic, financial and political developments and their impact
on the securities market, including the portfolio manager's views on how such
developments could impact the Fund; and
* information about the mutual fund industry from sources such as the Investment
Company Institute.
The Fund may compare its performance, or performance for the types of securities
in which it invests, to a variety of other investments, including federally
insured bank products such as bank savings accounts, certificates of deposit,
and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
LIPPER ANALYTICAL SERVICES, INC.
Lipper Analytical Services, Inc. ranks funds in various fund categories
based on total return, which assumes the reinvestment of all income
dividends and capital gains distributions, if any.
IBC/DONOGHUE'S MONEY FUND REPORT
IBC/Donoghue's Money Fund Report publishes annualized yields of money market
funds weekly. Donoghue's Money Market Insight publication reports monthly and
12-month-to-date investment results for the same money funds.
MONEY
Money, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day effective yield.
Who is Federated Investors, Inc.?
Federated is dedicated to meeting investor needs by making structured,
straightforward and consistent investment decisions. Federated investment
products have a history of competitive performance and have gained the
confidence of thousands of financial institutions and individual investors.
Federated's disciplined investment selection process is rooted in sound
methodologies backed by fundamental and technical research. At Federated,
success in investment management does not depend solely on the skill of a single
portfolio manager. It is a fusion of individual talents and state- of-the-art
industry tools and resources. Federated's investment process involves teams of
portfolio managers and analysts, and investment decisions are executed by
traders who are dedicated to specific market sectors and who handle trillions of
dollars in annual trading volume.
FEDERATED FUNDS OVERVIEW
MUNICIPAL FUNDS
In the municipal sector, as of December 31, 1998, Federated managed 10 bond
funds with approximately $2.2 billion in assets and 23 money market funds with
approximately $12.5 billion in total assets. In 1976, Federated introduced one
of the first municipal bond mutual funds in the industry and is now one of the
largest institutional buyers of municipal securities. The Funds may quote
statistics from organizations including The Tax Foundation and the National
Taxpayers Union regarding the tax obligations of Americans.
EQUITY FUNDS
In the equity sector, Federated has more than 28 years' experience. As of
December 31, 1998, Federated managed 27 equity funds totaling approximately
$14.9 billion in assets across growth, value, equity income, international,
index and sector (i.e. utility) styles. Federated's value- oriented management
style combines quantitative and qualitative analysis and features a structured,
computer-assisted composite modeling system that was developed in the 1970s.
CORPORATE BOND FUNDS
In the corporate bond sector, as of December 31, 1998, Federated managed 9 money
market funds and 15 bond funds with assets approximating $22.8 billion and $7.1
billion, respectively. Federated's corporate bond decision making-based on
intensive, diligent credit analysis-is backed by over 26 years of experience in
the corporate bond sector. In 1972, Federated introduced one of the first
high-yield bond funds in the industry. In 1983, Federated was one of the first
fund managers to participate in the asset backed securities market, a market
totaling more than $209 billion.
GOVERNMENT FUNDS
In the government sector, as of December 31, 1998, Federated managed 9 mortgage
backed, 5 government/agency and 19 government money market mutual funds, with
assets approximating $5.3 billion, $1.8 billion and $41.6 billion, respectively.
Federated trades approximately $425 million in U.S. government and mortgage
backed securities daily and places approximately $25 billion in repurchase
agreements each day. Federated introduced the first U.S. government fund to
invest in U.S. government bond securities in 1969. Federated has been a major
force in the short- and intermediate-term government markets since 1982 and
currently manages approximately $43.2 billion in government funds within these
maturity ranges.
MONEY MARKET FUNDS
In the money market sector, Federated gained prominence in the mutual fund
industry in 1974 with the creation of the first institutional money market fund.
Simultaneously, the company pioneered the use of the amortized cost method of
accounting for valuing shares of money market funds, a principal means used by
money managers today to value money market fund shares. Other innovations
include the first institutional tax-free money market fund. As of December 31,
1998, Federated managed more than $76.7 billion in assets across 52 money market
funds, including 19 government, 9 prime and 23 municipal with assets
approximating $41.6 billion, $22.8 billion and $12.5 billion, respectively.
The Chief Investment Officers responsible for oversight of the various
investment sectors within Federated are: U.S. equity and high yield-
J. Thomas Madden; U.S. fixed income-William D. Dawson, III; and global
equities and fixed income-Henry A. Frantzen. The Chief Investment Officers
are Executive Vice Presidents of the Federated advisory companies.
MUTUAL FUND MARKET
Thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $5 trillion to the more than 7,300 funds available,
according to the Investment Company Institute.
FEDERATED CLIENTS OVERVIEW
Federated distributes mutual funds through its subsidiaries for a variety of
investment purposes. Specific markets include:
INSTITUTIONAL CLIENTS
Federated meets the needs of approximately 900 institutional clients nationwide
by managing and servicing separate accounts and mutual funds for a variety of
purposes, including defined benefit and defined contribution programs, cash
management, and asset/liability management. Institutional clients include
corporations, pension funds, tax exempt entities, foundations/endowments,
insurance companies, and investment and financial advisers. The marketing effort
to these institutional clients is headed by John B. Fisher, President,
Institutional Sales Division, Federated Securities Corp.
BANK MARKETING
Other institutional clients include more than 1,600 banks and trust
organizations. Virtually all of the trust divisions of the top 100 bank holding
companies use Federated Funds in their clients' portfolios. The marketing effort
to trust clients is headed by Timothy C. Pillion, Senior Vice President, Bank
Marketing & Sales.
BROKER/DEALERS AND BANK BROKER/DEALER SUBSIDIARIES
Federated Funds are available to consumers through major brokerage firms
nationwide-we have over 2,200 broker/dealer and bank broker/dealer relationships
across the country-supported by more wholesalers than any other mutual fund
distributor. Federated's service to financial professionals and institutions has
earned it high ratings in several surveys performed by DALBAR, Inc. DALBAR is
recognized as the industry benchmark for service quality measurement. The
marketing effort to these firms is headed by James F. Getz, President,
Broker/Dealer Sales Division, Federated Securities Corp.
Financial Information
The Financial Statements for the Fund for the fiscal year ended May 31, 1999 are
incorporated herein by reference to the Annual Report to Shareholders of
Treasury Cash Series dated May 31, 1999.
Addresses
TREASURY CASH SERIES
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
200 Berkeley Street
Boston, MA 02116
PROSPECTUS
Cash Trust Series, Inc.
PRIME CASH SERIES
TREASURY CASH SERIES
GOVERNMENT CASH SERIES
MUNICIPAL CASH SERIES
As with all mutual funds, the Securities and Exchange Commission (SEC) has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal offense.
SEPTEMBER 30, 1999
CONTENTS
Risk/Return Summary 1
What are Each Fund's Fees and Expenses? 6
What are Each Fund's Investment Strategies? 7
What are the Principal Securities in Which Each
Fund Invests? 8
What are the Specific Risks of Investing in Each Fund? 9
What Do Shares Cost? 10
How are the Funds Sold? 10
How to Purchase Shares 11
How to Redeem Shares 12
Account and Share Information 14
Who Manages the Funds? 15
Last Meeting of Shareholders 17
Financial Information 24
Risk/Return Summary
WHAT IS EACH FUND'S INVESTMENT OBJECTIVE?
Each Fund is a money market mutual fund that seeks to maintain a stable net
asset value of $1.00 per Share.
<TABLE>
<CAPTION>
FUND Objective
<S> <C>
Prime Cash Series
(Prime Fund)
To provide current income consistent with stability of
principal and liquidity.
Treasury Cash Series
(Treasury Fund)
To provide current income consistent with stability of
principal and liquidity.
Government Cash Series
(Government Fund)
To provide current income consistent with stability of
principal and liquidity.
Municipal Cash Series
(Municipal Fund)
To provide current income exempt from federal regular
income tax consistent with stability of principal.
</TABLE>
While there is no assurance that a Fund will achieve its investment objective,
it endeavors to do so by following the strategies and policies described in this
prospectus.
WHAT ARE EACH FUND'S MAIN INVESTMENT STRATEGIES?
Each of the Funds invests in a portfolio of securities maturing in 397 days or
less. The portfolio of each Fund will have a dollar-weighted maturity of 90 days
or less.
PRIME FUND
The Fund invests primarily in high quality fixed income securities issued by
banks, corporations and the U.S. government.
TREASURY FUND
The Fund invests primarily in U.S. Treasury securities. These investments
include repurchase agreements collateralized fully by U.S. Treasury
securities.
GOVERNMENT FUND
The Fund invests primarily in a portfolio of U.S. Treasury and government agency
securities. These investments include repurchase agreements collateralized fully
by U.S. Treasury and government agency securities.
MUNICIPAL FUND
The Fund invests in high quality tax exempt securities. At least 80% of the
Fund's annual interest income will be exempt from federal regular income tax.
Interest from the Fund's investments may be subject to the federal alternative
minimum tax for individuals and corporations (AMT).
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?
All mutual funds take investment risks. Therefore, even though the Funds are
money market funds that seek to maintain a stable net asset value, it is
possible to lose money by investing in a Fund. The Shares offered by this
prospectus are not deposits or obligations of any bank, are not endorsed or
guaranteed by any bank and are not insured or guaranteed by the U.S. government,
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other government agency.
RISK/RETURN BAR CHART AND TABLE
[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Prime Fund as of the calendar year-end for each of
nine years. The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 2% up to 8%. The `x' axis represents calculation
periods from the earliest first full calendar year end of the Fund's start of
business through the calendar year ended1998 The light gray shaded chart
features nine distinct vertical bars, each shaded in charcoal, and each visually
representing by height the total return percentages for the calendar year stated
directly at its base. The calculated total return percentage for the Fund for
each calendar year is stated directly at the top of each respective bar, for the
calendar years 1990 through1998. The percentages noted are: 7.74%, 5.47%, 3.06%,
2.38%, 4.48%, 5.20%, 4.63%, 4.77% and 4.73% respectively.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 2.05%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.91% (quarter ended March 31, 1990). Its lowest quarterly return was 0.58%
(quarters ended June 30, 1993 and September 30, 1993).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 4.73%
5 Years 4.56%
Start of Performance 1 4.76%
</TABLE>
1 The Fund's start of performance date was August 15, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 4.37%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
RISK/RETURN BAR CHART AND TABLE
[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Treasury Fund as of the calendar year-end for each
of eight years. The `y' axis reflects the "% Total Return" beginning with
"0.00%" and increasing in increments of 1.50% up to 6.00%. The `x' axis
represents calculation periods from the earliest first full calendar year end of
the Fund's start of business through the calendar year ended December 31, 1998.
The light gray shaded chart features eight distinct vertical bars, each shaded
in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1991 through 1998. The
percentages noted are: 5.23%, 2.94%, 2.26%, 3.28%, 5.06%, 4.49%, 4.64%, and
4.53%, respectively.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 1.91%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.47% (quarter ended March 31, 1991). Its lowest quarterly return was 0.55%
(quarter ended June 30, 1993).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 4.53%
5 Years 4.40%
Start of Performance 1 4.41%
</TABLE>
1 The Fund's start of performance date was February 7, 1990.
The Fund's 7-Day Net Yield as of December 31, 1998 was 3.94%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
RISK/RETURN BAR CHART AND TABLE
[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Government Fund as of the calendar year-end for each
of nine years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2% up to 8%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended1998 The light gray shaded chart features nine distinct vertical bars, each
shaded in charcoal, and each visually representing by height the total return
percentages for the calendar year stated directly at its base. The calculated
total return percentage for the Fund for each calendar year is stated directly
at the top of each respective bar, for the calendar years 1990 through1998. The
percentages noted are: 7.62%, 5.33%, 3.01%, 2.34%, 3.38%, 5.09%, 4.53%, 4.68%
and 4.59%, respectively.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 1.97%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.90% (quarter ended March 31, 1990). Its lowest quarterly return was 0.57%
(quarter ended June 30, 1993).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 4.59%
5 Years 4.45%
Start of Performance 1 4.67%
</TABLE>
1 The Fund's start of performance date was August 15, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 4.09%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
RISK/RETURN BAR CHART AND TABLE
[The graphic presentation displayed here consists of a bar chart representing
the annual total returns of Municipal Fund as of the calendar year-end for each
of nine years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 2.00% up to 6.00%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features nine distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1990
through 1998. The percentages noted are: 5.69%, 4.28%, 2.51%, 1.88%, 2.21%,
3.24%, 2.80%, 2.90% and 2.75%, respectively.]
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return for the six-month period from January 1, 1999 to June
30, 1999 was 1.21%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.43% (quarter ended June 30, 1990). Its lowest quarterly return was 0.41%
(quarter ended March 31, 1994).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ended December 31, 1998.
<TABLE>
<CAPTION>
CALENDAR PERIOD FUND
<S> <C>
1 Year 2.75%
5 Years 2.78%
Start of Performance 1 3.25%
</TABLE>
1 The Fund's start of performance date was August 15, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 2.93%. Investors may call
the Fund at 1-800-341-7400 to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance information so that you can
analyze whether the Fund's investment risks are balanced by its potential
returns.
What are Each Fund's Fees and Expenses?
CASH TRUST SERIES, INC.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of Cash Trust Series, Inc.
<TABLE>
<CAPTION>
PRIME TREASURY GOVERNMENT MUNICIPAL
SHAREHOLDER FEES FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Fees Paid Directly From
Your Investment
Maximum Sales Charge
(Load) Imposed on
Purchases
(as a percentage of
offering price) None None None None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds, as
applicable) None None None None
Maximum Sales Charge
(Load) Imposed on
Reinvested Dividends (and
other Distributions) (as a
percentage of offering
price) None None None None
Redemption Fee (as a
percentage of amount
redeemed, if applicable) None None None None
Exchange Fee None None None None
<CAPTION>
<S> <C> <C> <C> <C> ANNUAL FUND OPERATING EXPENSES (Before Waivers and
Reductions) 1 Expenses That are Deducted From Fund Assets (as a percentage of
average net assets) Management Fee 2 0.50% 0.50% 0.50% 0.50% Distribution
(12b-1) Fee 3 0.35% 0.35% 0.35% 0.35% Shareholder Services Fee 0.25% 0.25% 0.25%
0.25% Other Expenses 0.31% 0.22% 0.27% 0.28% Total Annual Fund Operating
Expenses 1.41% 1.32% 1.37% 1.38% 1 Although not contractually obligated to do
so, the adviser waived certain amounts and the distributor elected not to accrue
a portion of its distribution (12b-1) fee. These are shown below along with the
net expenses the Funds actually paid for the fiscal year ended May 31, 1999.
Total Waivers and
Reductions of Fund
Expenses 0.41% 0.32% 0.37% 0.37%
Total Actual Annual Fund
Operating Expenses
(after waivers and
reductions) 1.00% 1.00% 1.00% 1.01% 2 The adviser voluntarily waived a portion
of the management fee during the fiscal year ended May 31, 1999. The adviser can
terminate this voluntary waiver at any time. The management fee paid by Prime
Fund, Treasury Fund, Government Fund and Municipal Fund (after the voluntary
waiver) was 0.34%, 0.43%,0.38%, and 0.38%, respectively, for the fiscal year
ended May 31, 1999. 3 The distributor voluntarily elected not to accrue a
portion of its distribution (12b-1) fee during the fiscal year ended May 31,
1999. The distributor can terminate this voluntary reduction at any time. The
distribution (12b-1) fee paid by each Fund (after the voluntary reduction) was
0.10% for the year ended May 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Funds'
Shares with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Funds' Shares for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that the Funds' Shares operating expenses are BEFORE WAIVERS AND REDUCTIONS
as shown in the table and remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Prime Fund $144 $446 $771 $1,691
Treasury Fund $135 $421 $729 $1,601
Government Fund $139 $434 $750 $1,646
Municipal Fund $141 $437 $755 $1,657
</TABLE>
What are Each Fund's Investment Strategies?
Each Fund's investment strategy is described earlier under "What are Each Fund's
Main Investment Strategies?" Following is additional information on the
investment strategies for the Funds.
The investment adviser (Adviser) for each of the Funds targets a dollar-weighted
average portfolio maturity range based upon its interest rate outlook. The
Adviser formulates its interest rate outlook by analyzing a variety of factors,
such as:
* current U.S. economic activity and the economic outlook;
* current short-term interest rates;
* the Federal Reserve Board's policies regarding short-term interest
rates; and
* the potential effects of foreign economic activity on U.S. short term
interest rates.
The Adviser generally shortens the portfolio's dollar-weighted average maturity
when it expects interest rates to rise and extends the maturity when it expects
interest rates to fall. The Adviser selects securities used to shorten or extend
the portfolio's dollar-weighted average maturity by comparing the returns
currently offered by different investments to their historical and expected
returns.
PRIME FUND AND MUNICIPAL FUND
The Adviser performs a fundamental credit analysis to develop an approved list
of issuers and securities that meet the Adviser's standard for minimal credit
risk. The Adviser monitors the credit risks of all portfolio securities on an
ongoing basis by reviewing periodic financial data and ratings of nationally
recognized statistical rating services (NRSROs).
MUNICIPAL FUND
In targeting a dollar-weighted average portfolio maturity range, the Adviser
also will consider the tax exempt securities available.
TEMPORARY DEFENSIVE INVESTMENTS
The Municipal Fund may temporarily depart from its principal investment
strategies by investing its assets in securities subject to federal income tax.
It may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to receive and distribute taxable income to investors.
What are the Principal Securities in Which Each Fund Invests?
TREASURY FUND
The Treasury Fund invests primarily in fixed income securities, including U.S.
Treasury securities and repurchase agreements.
PRIME FUND
The Prime Fund invests primarily in fixed income securities, including corporate
debt securities, commercial paper, demand instruments, bank instruments, asset
backed securities and repurchase agreements. Certain of these fixed income
securities may be subject to credit enhancement.
GOVERNMENT FUND
The Government Fund invests primarily in fixed income securities, including U.S.
Treasury securities, agency securities and repurchase agreements.
MUNICIPAL FUND
The Municipal Fund invests primarily in tax exempt securities, a type of fixed
income security, including variable rate demand instruments and municipal notes.
Certain of these tax exempt securities may be subject to credit enhancement.
FIXED INCOME SECURITIES
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time.
U.S. TREASURY SECURITIES
U.S. Treasury Securities are direct obligations of the federal government
of the United States.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a GSE). The United
States supports some GSEs with its full faith and credit. Other GSEs receive
support through federal subsidies, loans or other benefits. A few GSEs have not
explicit financial support, but are regarded as having implied support because
the federal government sponsors their activities.
CORPORATE DEBT SECURITIES
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types of
corporate debt securities. The Funds may also purchase interests in bank loans
to companies. The credit risks of corporate debt securities vary widely among
issuers.
COMMERCIAL PAPER
Commercial paper is an issuer's obligation with a maturity of less than nine
months. Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. If the issuer cannot continue
to obtain liquidity in this fashion, its commercial paper may default.
DEMAND INSTRUMENTS
Demand instruments are corporate debt securities that the issuer must repay upon
demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Funds
treats demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.
BANK INSTRUMENTS
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit
and banker's acceptances. Yankee instruments are denominated in
U.S. dollars and issued by U.S. branches of foreign banks. Eurodollar
instruments are denominated in U.S. dollars and issued by non-
U.S. branches of U.S. or foreign banks.
ASSET BACKED SECURITIES
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial debts
with maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an asset
backed security. Asset backed securities may take the form of commercial paper,
notes, or pass through certificates.
INVESTMENT RATINGS
The securities in which the Prime Fund and Municipal Fund invest must be rated
in one of the two highest short-term rating categories by one or more NRSROs or
be of comparable quality to securities having such ratings.
What are the Specific Risks of Investing in Each Fund?
Each of the Funds is subject to interest rate risks and credit risks. In
addition, the Prime Fund and Municipal Fund may be subject to sector risks.
INTEREST RATE RISKS
Prices of fixed income securities rise and fall in response to changes in the
interest rate paid by similar securities. Generally, when interest rates rise,
prices of fixed income securities fall. However, market factors, such as the
demand for particular fixed income securities, may cause the price of certain
fixed income securities to fall while the prices of other securities rise or
remain unchanged.
Interest rate changes have a greater effect on the price of fixed income
securities with longer maturities. Money market funds try to minimize this risk
by purchasing short-term securities.
CREDIT RISKS
PRIME FUND AND MUNICIPAL FUND
Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, the Fund
will lose money. Money market funds try to minimize this risk by purchasing
higher quality securities.
Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investors Service, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not received
a rating, the Fund must rely entirely on the Adviser's credit assessment.
PRIME FUND, TREASURY FUND AND GOVERNMENT FUND
Credit risk includes the possibility that a party to a transaction involving the
Fund will fail to meet its obligations. This could cause the Fund to lose the
benefit of the transaction or prevent the Fund from selling or buying other
securities to implement its investment strategy.
SECTOR RISKS
A substantial part of the Prime Fund's and Municipal Fund's portfolio may be
comprised of securities credit enhanced by banks or companies with similar
characteristics. As a result, the Prime Fund and Municipal Fund will be more
susceptible to any economic, business, political or other developments which
generally affect these entities.
What Do Shares Cost?
You can purchase or redeem Shares any day the New York Stock Exchange (NYSE) is
open. The Funds attempt to stabilize the net asset value (NAV) of their Shares
at $1.00 by valuing the portfolio securities using the amortized cost method. A
Fund cannot guarantee that its NAV will always remain at $1.00 per Share. The
Funds do not charge a front-end sales charge. NAV is determined at 12:00 noon
and 3:00 p.m. (Eastern time) and as of the end of regular trading (normally 4:00
p.m. Eastern time) each day the NYSE is open.
The required minimum initial investment amount for Fund Shares is $10,000. The
minimum subsequent investment amount is $500. The minimum initial and subsequent
investment amounts for retirement plans, except for the Municipal Fund, are $250
and $100, respectively.
An institutional investor's minimum investment is calculated by combining all
accounts it maintains with a Fund. Accounts established through investment
professionals may be subject to a smaller minimum investment amount. Keep in
mind that investment professionals may charge you fees for their services in
connection with your Share transactions.
How are the Funds Sold?
The Fund's Distributor, Federated Securities Corp., markets the Shares described
in this prospectus to customers of financial institutions such as banks,
fiduciaries, custodians of public funds, investment advisers and broker/dealers
or individuals, directly or through investment professionals. The Municipal Fund
may not be a suitable investment for retirement plans because it invests in
municipal securities.
When the Distributor receives marketing fees, it may pay some or all of them to
investment professionals. The Distributor and its affiliates may pay out of
their assets other amounts (including items of material value) to investment
professionals for marketing and servicing Shares. The Distributor is a
subsidiary of Federated Investors, Inc. (Federated).
RULE 12B-1 PLAN
The Funds have each adopted a Rule 12b-1 Plan, which allows them to pay
marketing fees to the Distributor and investment professionals for the sale,
distribution and customer servicing of the Funds' Shares. Because these Shares
pay marketing fees on an ongoing basis, your investment cost may be higher over
time than other shares with different sales charges and marketing fees.
How to Purchase Shares
You may purchase Shares through an investment professional or directly from the
Funds. The Funds reserve the right to reject any request to purchase Shares.
THROUGH AN INVESTMENT PROFESSIONAL
* Establish an account with the investment professional; and
* Submit your purchase order to the investment professional before 3:00 p.m.
(Eastern time). You will receive that day's dividend if the investment
professional forwards the order to the Fund and the Fund receives payment by
3:00 p.m. (Eastern time). You will become the owner of Shares and receive
dividends when a Fund receives your payment.
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
DIRECTLY FROM THE FUNDS
* Establish your account with a Fund by submitting a completed New Account
Form; and
* Send your payment to a Fund by Federal Reserve wire or check.
You will become the owner of Shares after a Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees a Fund or its transfer agent incurs.
An institution may establish an account and place an order by calling a Fund and
will become a shareholder after the Fund receives the order.
BY WIRE
Send your wire to:
State Street Bank and Trust Company
Boston, MA
Dollar Amount of Wire
ABA Number 011000028
Attention: EDGEWIRE
Wire Order Number, Dealer Number or Group Number
Nominee/Institution Name
Fund Name and Number and Account Number
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
BY CHECK
Make your check payable to THE FEDERATED FUNDS, note your account number on the
check, and mail it to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
If you send your check by a PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE that
requires a street address, mail it to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Fund will
not accept third-party checks (checks originally payable to someone other than
you or The Federated Funds). Orders by mail are considered received when payment
by check is converted into federal funds (normally the business day after the
check is received) and Shares begin earning dividends the next day.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis by completing the Systematic Investment Program (SIP)
section of the New Account Form or by contacting the Funds or your investment
professional. The minimum investment amount for SIPs is $50.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares of the Prime Fund, Treasury Fund or Government Fund as
retirement investments (such as qualified plans and IRAs or transfer or rollover
of assets). Call your investment professional or the Funds for information on
retirement investments. We suggest that you discuss retirement investments with
your tax adviser. You may be subject to an annual IRA account fee.
How to Redeem Shares
You should redeem Shares:
* through an investment professional if you purchased Shares through an
investment professional; or
* directly from a Fund if you purchased Shares directly from the Fund.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). Investment
professionals are responsible for promptly submitting redemption requests and
providing proper written redemption instructions as outlined below.
DIRECTLY FROM THE FUNDS
BY TELEPHONE
You may redeem Shares by calling the Fund at
1-800-341-7400 once you have completed the appropriate authorization form
for telephone transactions.
If you call before 3:00 p.m. (Eastern time) with respect to the Treasury Fund,
Prime Fund and Government Fund, or 12:00 noon (Eastern time) with respect to the
Municipal Fund, your redemption will be wired to you the same day. You will not
receive that day's dividend.
If you call after 3:00 p.m. (Eastern time) with respect to the Treasury Fund,
Prime Fund and Government Fund, or 12:00 noon (Eastern time) with respect to the
Municipal Fund, your redemption will be wired to you the following business day.
You will receive that day's dividend. Under limited circumstances, arrangements
may be made with the Distributor for same-day payment of redemption proceeds,
without that day's dividend, for redemption requests received before 2:00 p.m.
(Eastern time).
BY MAIL
You may redeem Shares by mailing a written request to a Fund.
Your redemption request will be processed on the day the Fund receives your
written request in proper form. Dividends are paid up to and including the day
that a redemption request is processed. Send requests by mail to:
Federated Shareholder Services Company
P.O. Box 8600
Boston, MA 02266-8600
Send requests by PRIVATE COURIER OR OVERNIGHT DELIVERY SERVICE to:
Federated Shareholder Services Company
1099 Hingham Street
Rockland, MA 02370-3317
All requests must include:
* Fund Name and Share Class, account number and account registration;
* amount to be redeemed; and
* signatures of all shareholders exactly as registered.
Call your investment professional or the Fund if you need special instructions.
SIGNATURE GUARANTEES
Signatures must be guaranteed if:
* your redemption will be sent to an address other than the address of
record;
* your redemption will be sent to an address of record that was changed
within the last 30 days; or
* a redemption is payable to someone other than the shareholder(s) of
record.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
* an electronic transfer to your account at a financial institution that is
an ACH member; or
* wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
REDEMPTION IN KIND
Although each Fund intends to pay Share redemptions in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of the
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
* to allow your purchase to clear;
* during periods of market volatility; or
* when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from a Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Prime Fund, Treasury Fund and
Government Fund may be withheld for taxes. This withholding only applies to
certain types of retirement accounts.
SYSTEMATIC WITHDRAWAL PROGRAM
You may automatically redeem Shares in a minimum amount of $100 on a regular
basis. Complete the appropriate section of the New Account Form or an Account
Service Options Form or contact your investment professional or a Fund. Your
account value must meet the minimum initial investment amount at the time the
program is established. This program may reduce, and eventually deplete, your
account. Payments should not be considered yield or income.
CHECKWRITING
You may request checks to redeem your Shares. Your account will continue to
receive the daily dividend declared on the Shares being redeemed until the check
is presented for payment.
DEBIT CARD
You may request a debit card account that allows you to redeem Shares. There is
an annual fee for this service that the Fund will automatically deduct from your
account.
ADDITIONAL CONDITIONS
TELEPHONE TRANSACTIONS
The Funds will record your telephone instructions. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
SHARE CERTIFICATES
The Funds no longer issues share certificates. If you are redeeming Shares
represented by certificates previously issued by a Fund, you must return the
certificates with your written redemption request. For your protection, send
your certificates by registered or certified mail, but do not endorse them.
Account and Share Information
ACCOUNT ACTIVITY
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Funds declare any dividends daily and pay them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
The Funds do not expect to realize any capital gains or losses. If capital gains
or losses were to occur, they could result in an increase or decrease in
dividends. The Funds pay any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, accounts (other
than retirement accounts for the Prime Fund, Treasury Fund and Government Fund)
may be closed if redemptions cause the account balance to fall below the minimum
initial investment amount. Before an account is closed, you will be notified and
allowed 30 days to purchase additional Shares to meet the minimum.
TAX INFORMATION
The Prime Fund, Treasury Fund and Government Fund send an annual statement of
your account activity to assist you in completing your federal, state and local
tax returns. Fund distributions of dividends and capital gains are taxable to
you whether paid in cash or reinvested in a Fund. Dividends are taxable as
ordinary income; capital gains are taxable at different rates depending upon the
length of time a Fund holds its assets.
Fund distributions are expected to be primarily dividends. Redemptions are
taxable sales. Please consult your tax adviser regarding your federal, state and
local tax liability.
The Municipal Fund sends an annual statement of your account activity to assist
you in completing your federal, state and local tax returns. It is anticipated
that Fund distributions will be primarily dividends that are exempt from federal
income tax, although a portion of the Fund's dividends may not be exempt.
Dividends may be subject to state and local taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions are taxable sales. Please consult your tax adviser regarding your
federal, state and local tax liability.
Who Manages the Funds?
The Board of Directors governs the Funds. The Board selects and oversees the
Adviser, Federated Investment Management Company. The Adviser manages the Funds'
assets, including buying and selling portfolio securities. The Adviser's address
is Federated Investors Tower, 1001 Liberty Avenue, Pittsburgh, PA 15222-3779.
The Adviser and other subsidiaries of Federated advise approximately 175 mutual
funds and separate accounts, which totaled approximately $111 billion in assets
as of December 31, 1998. Federated was established in 1955 and is one of the
largest mutual fund investment managers in the United States with approximately
1,900 employees. More than 4,000 investment professionals make Federated Funds
available to their customers.
ADVISORY FEES
The Adviser receives an annual investment advisory fee of 0.50% of each Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse the Fund for certain operating expenses.
YEAR 2000 READINESS
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Funds, that rely on computers.
While it is impossible to determine in advance all of the risks to the Funds,
the Funds could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase. The financial impact of these issues for the Funds is still being
determined. There can be no assurance that potential Year 2000 problems would
not have a material adverse effect on the Funds.
Last Meeting of Shareholders
PRIME FUND
An Annual Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholder voting at the meeting, there were
4,697,776,987 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
NAME FOR TO VOTE
<S> <C> <C>
John F. Cunningham 2,321,373,572 69,677,365
Charles F. Mansfield, Jr. 2,320,978,712 70,072,255
John S. Walsh 2,320,869,344 70,181,593
</TABLE>
1 The following Directors continued their terms: John F. Donahue, Thomas G.
Bigley, John T. Conroy, Jr., Nicholas Constantakis, Lawrence D. Ellis, M.D.,
Peter E. Madden, John E. Murray, Jr., J.D., S.J.D., Marjorie P.
Smuts, and J. Christopher Donahue.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the independent
auditors for Cash Trust Series, Inc. (Company):
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
2,291,538,887 21,898,105 77,613,945
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,733,068,671 83,818,169 239,408,512 334,755,585
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,724,125,798 92,073,775 239,408,512 335,442,852
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,713,125,763 105,756,032 239,408,513 332,760,629
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding underwriting
securities:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,737,153,111 81,693,606 239,408,512 332,795,708
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding lending assets:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,720,988,373 98,825,822 239,408,512 331,828,230
</TABLE>
(g) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,735,041,139 82,949,588 239,408,513 333,651,697
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,707,415,098 114,209,062 239,408,512 330,018,265
</TABLE>
(i) To amend, and make non-fundamental, the Fund's fundamental investment policy
regarding pledging assets:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,698,907,673 111,824,933 239,408,512 340,909,819
</TABLE>
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,705,920,604 106,434,858 239,408,512 339,286,963
</TABLE>
The following item did not receive the required (greater than 50%) majority
approval vote of shareholders and, therefore, was not approved:
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
1,721,512,030 99,720,477 239,408,513 330,409,917
</TABLE>
Last Meeting of Shareholders
TREASURY FUND
An Annual Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholders voting at the meeting, there were
992,887,496 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
John F. Cunningham 683,401,762 10,197,449
Charles F. Mansfield, Jr. 683,403,331 10,195,880
John S. Walsh 683,403,331 10,195,880
</TABLE>
1 The following Directors continued their terms: John F. Donahue, Thomas G.
Bigley, John T. Conroy, Jr., Nicholas Constantakis, Lawrence D. Ellis, M.D.,
Peter E. Madden, John E. Murray, Jr., J.D., S.J.D., Marjorie P.
Smuts, and J. Christopher Donahue.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the independent
auditors for Cash Trust Series, Inc. (Company):
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
681,325,021 2,362,048 9,912,142
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(a) To amend the Fund's fundamental investment policy on diversification of its
investments.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
499,890,115 9,509,001 19,571,489 164,628,606
</TABLE>
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,935,411 10,410,573 19,571,489 164,681,738
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,131,340 11,363,897 19,571,490 164,532,484
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,700,114 10,252,530 19,571,489 165,075,078
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
498,998,744 10,365,579 19,571,489 164,663,399
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
500,936,056 9,147,809 19,571,489 163,943,857
</TABLE>
(g) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
499,015,104 9,368,730 19,571,489 165,643,888
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
474,854,650 10,122,093 19,571,489 189,050,979
</TABLE>
(i) To make non-fundamental the Fund's fundamental investment policy on
investing in restricted securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
474,824,853 10,061,260 19,571,489 189,141,609
</TABLE>
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
473,329,563 11,896,774 19,571,490 188,801,384
</TABLE>
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
497,372,856 12,278,077 19,571,489 164,376,789
</TABLE>
Last Meeting of Shareholders
GOVERNMENT FUND
An Annual Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholder voting at the meeting, there were
569,449,188 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
FOR TO VOTE
<S> <C> <C>
John F. Cunningham 391,833,695 7,602,095
Charles F. Mansfield, Jr. 391,893,194 7,542,596
John S. Walsh 391,893,194 7,542,596
</TABLE>
1 The following Directors continued their terms: John F. Donahue, Thomas G.
Bigley, John T. Conroy, Jr., Nicholas Constantakis, Lawrence D. Ellis, M.D.,
Peter E. Madden, John E. Murray, Jr., J.D., S.J.D., Majorie P.
Smuts, and J. Christopher Donahue.
AGENDA ITEM 2
To ratify the selection of
Deloitte & Touche LLP as the
independent auditors for Cash
Trust Series, Inc. (Company):
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
393,673,648 1,918,165 3,843,977
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's
fundamental
investment policies:
(a) To amend the Fund's
fundamental investment policy
on diversification of its investments.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
291,983,396 12,529,883 45,555,349 49,367,162
</TABLE>
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
288,906,812 15,237,932 45,555,349 49,735,697
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
290,710,542 13,827,306 45,555,350 49,342,592
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
288,026,517 16,318,226 45,555,349 49,535,698
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
289,810,861 14,327,034 45,555,349 49,742,546
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
287,550,681 16,466,974 45,555,349 49,862,786
</TABLE>
(g) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
287,757,875 16,318,789 45,555,349 49,803,777
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
283,495,126 20,303,454 45,555,349 50,081,861
</TABLE>
(i) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
283,078,524 20,513,771 45,555,349 50,288,146
</TABLE>
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
285,483,518 18,590,593 45,555,349 49,806,330
</TABLE>
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
286,836,585 16,827,552 45,555,349 50,216,304
</TABLE>
Last Meeting of Shareholders
MUNICIPAL FUND
An Annual Meeting of shareholders was held on September 10, 1999. As of April
15, 1999, the record date for shareholder voting at the meeting, there were
447,535,555 total outstanding Shares. The following items were considered by
shareholders and the results of their voting were as follows:
AGENDA ITEM 1
To elect Directors: 1
<TABLE>
<CAPTION>
WITHHELD
AUTHORITY
NAMES FOR TO VOTE
<S> <C> <C>
John F. Cunningham 307,989,428 18,013,386
Charles F. Mansfield, Jr. 308,769,110 17,233,704
John S. Walsh 308,809,413 17,193,401
</TABLE>
1 The following Directors continued their terms: John F. Donahue, Thomas G.
Bigley, John T. Conroy, Jr., Nicholas Constantakis, Lawrence D. Ellis, M.D.,
Peter E. Madden, John E. Murray, Jr., J.D., S.J.D., Marjorie P.
Smuts, and J. Christopher Donahue.
AGENDA ITEM 2
To ratify the selection of Deloitte & Touche LLP as the independent
auditors for Cash Trust Series, Inc. (Company):
<TABLE>
<CAPTION>
FOR AGAINST ABSTENTIONS
<S> <C> <C>
309,313,210 1,772,027 14,917,577
</TABLE>
AGENDA ITEM 3
To make changes to the Fund's fundamental investment policies:
(b) To amend the Fund's fundamental investment policy regarding borrowing money
and issuing senior securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,989,380 12,735,569 53,154,023 34,123,842
</TABLE>
(c) To amend the Fund's fundamental investment policy regarding investments in
real estate.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,556,983 12,897,674 53,154,023 34,394,134
</TABLE>
(d) To amend the Fund's fundamental investment policy regarding investments in
commodities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
221,872,783 16,704,313 53,154,024 34,271,694
</TABLE>
(e) To amend the Fund's fundamental investment policy regarding underwriting
securities.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,636,267 13,017,902 53,154,024 34,194,621
</TABLE>
(f) To amend the Fund's fundamental investment policy regarding lending assets.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
222,215,814 15,575,807 53,154,024 35,057,169
</TABLE>
(g) To amend the Fund's fundamental investment policy regarding concentration of
the Fund's investments in the securities of companies in the same industry.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
224,477,951 14,405,649 53,154,024 33,965,190
</TABLE>
(h) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding buying securities on margin.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
220,241,269 18,449,992 53,154,024 34,157,529
</TABLE>
(i) To amend, and to make non-fundamental, the Fund's fundamental investment
policy regarding pledging assets:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
221,191,245 17,543,731 53,154,024 34,113,814
</TABLE>
AGENDA ITEM 4
To eliminate the Fund's fundamental investment policy on selling securities
short:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
224,299,400 14,335,862 53,154,023 34,213,529
</TABLE>
AGENDA ITEM 5
To approve amendments to the Company's Articles of Incorporation to permit the
Board of Directors to liquidate assets of a series or class without seeking
shareholder approval to the extent permitted under Maryland law:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST NON-VOTE ABSTENTIONS
<S> <C> <C> <C>
225,178,645 14,155,224 53,154,023 33,514,922
</TABLE>
Financial Information
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand each Fund's financial
performance for its past five fiscal years. Some of the information is presented
on a per share basis. Total returns represent the rate an investor would have
earned (or lost) on an investment in each Fund, assuming reinvestment of any
dividends and capital gains.
This information has been audited by Deloitte & Touche LLP, whose reports, along
with each Fund's audited financial statements, are included in each Fund's
Annual Report.
Financial Highlights-Prime Fund
(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 voluntary
waivers had not occurred, the ratios would have been as indicated.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
Financial Highlights-Treasury Fund
(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.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
Financial Highlights-Government Fund
(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.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
Financial Highlights-Municipal Fund
(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.
Further information about the Fund's performance is contained in the Fund's
Annual Report, dated May 31, 1999, which can be obtained free of charge.
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Cash Trust Series, Inc.
Prime Cash Series
Treasury Cash Series
Government Cash Series
Municipal Cash Series
SEPTEMBER 30, 1999
Each Fund's Statement of Additional Information (SAI), dated September 30, 1999,
is incorporated by reference into this prospectus. Additional information about
the Funds and their investments is contained in each Fund's SAI and Annual and
Semi-Annual Reports to shareholders as they become available. The Annual Reports
discuss market conditions and investment strategies that significantly affected
each Fund's performance during its last fiscal year. To obtain the SAIs, the
Annual Reports, the Semi-Annual Reports and other information without charge,
and make inquiries, call your investment professional or the Fund at 1-800-341-
7400.
You can obtain information about the Funds (including the SAIs) by writing to or
visiting the Public Reference Room in Washington, DC. You may also access fund
information from the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You can purchase copies of this information by contacting
the SEC by email at [email protected] or by writing to the SEC's Public
Reference Section, Washington, DC 20549-0102. Call 1-202-942- 8090 for
information on the Public Reference Room's operations and copying fees.
[Graphic]
Federated
Cash Trust Series, Inc.
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Investment Company Act File No. 811-5843
Cusip 147551105
Cusip 147551402
Cusip 147551204
Cusip 147551303
G00861-01 (9/99)
[Graphic]