PROSPECTUS
Liquid Cash Trust
A Portfolio of Money Market Obligations Trust
A money market mutual fund seeking stability of principal and current income
consistent with stability of principal by investing primarily in a portfolio of
U.S. Treasury and government agency securities maturing in 13 months or less.
This Fund is available only to federally insured depository institutions
including:
* banks;
* savings associations; and
* credit unions.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
MAY 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? 9
Last Meeting of Shareholders 11
Financial Information 13
Independent Auditors' Report 21
Risk/Return Summary
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The Fund is a money market fund which seeks to maintain a stable net asset value
of $1.00. The Fund's investment objective is stability of principal and current
income 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 primarily in a portfolio of U.S. Treasury and government agency
securities maturing in 13 months or less. These investments include repurchase
agreements collateralized fully by U.S. Treasury and government agency
securities. The Fund also makes loans of federal funds to federally insured
depository institutions. By operating policy, the Fund limits depository
institutions receiving the loans to those the Adviser deems to be adequately
capitalized with a short term rating of Prime-1 by Moody's Investors Services,
Inc. Ordinarily, the Fund has a dollar weighted average maturity of between one
and seven days.
The Fund limits its investments to those that would enable it to qualify as a
permissible investment for national banks, federal savings associations and
federal credit unions. In addition, the Fund seeks to qualify as a liquid
investment under the rules of the Office of Thrift Supervision.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Although the Fund 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 Bar Chart and Performance Table below reflect historical performance data
for Liquid Cash Trust (the "Former Fund") prior to its reorganization into the
Fund, which is a newly created portfolio of Money Market Obligations Trust (the
"Trust"). On the date of the reorganization, April 30, 1999, the Former Fund was
dissolved and its net assets (inclusive of liabilities recorded on the Former
Fund's records) were transferred into the Fund.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Liquid Cash Trust as of the calendar year-end for each
of ten years. The `y' axis reflects the "% Total Return" beginning with "0" and
increasing in increments of 2% up to 10%. The `x' axis represents calculation
periods from the earliest first full calendar year end of the Former Fund's
start of business through the calendar year ended 1998. The light gray shaded
chart features ten 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
Former Fund for each calendar year is stated directly at the top of each
respective bar, for the calendar years 1989 through 1998. The percentages noted
are: 9.59%, 8.36%, 5.90%, 3.61%, 3.06%, 4.21%, 5.94%, 5.38%, 5.52% and 5.46%
respectively.
Historically, the Former Fund has maintained a constant $1.00 net asset value
per share. The bar chart shows the variability of the Former Fund's total
returns on a calendar year-end basis.
The Former Fund's shares were not sold subject to a sales charge (load). The
total returns displayed above are based upon net asset value.
The Former Fund's total return from January 1, 1999 through March 31, 1999 was
1.16%.
Within the period shown in the Chart, the Former Fund's highest quarterly return
was 2.44% (quarter ended June 30, 1989). Its lowest quarterly return was 0.74%
(quarter ended June 30, 1993).
AVERAGE ANNUAL TOTAL RETURN TABLE
The following table represents the Former Fund's Shares Average Annual Total
Return for the calendar periods ending December 31, 1998.
CALENDAR PERIOD FUND
1 Year 5.46%
5 Years 5.30%
10 Years 5.69%
The Fund's 7-Day Net Yield as of December 31, 1998 was 4.81%.
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
rewards.
What are the Fund's Fees and Expenses?
LIQUID CASH TRUST
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of Liquid Cash Trust.
<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 Waivers) 1
Expenses That are Deducted From Fund Assets (as a percentage
of average net assets)
Management Fee 2 0.40%
Distribution (12b-1) Fee None
Shareholder Services Fee 3 0.25%
Other Expenses 0.12%
Total Annual Fund Operating Expenses 0.77%
1 As a result of contractual obligations and voluntary waivers, the Adviser
and Shareholder Services Provider waived certain amounts. These are shown
below along with the net expenses the Fund actually paid for the fiscal
year ending March 31, 1999.
Total Waiver of Fund Expenses (contractual and voluntary) 0.62%
Total Actual Annual Operating Expenses (after waivers) 0.15%
2 Under the investment advisory contract, the Adviser will waive the amount,
limited to the amount of the management fee, by which the Fund's aggregate
annual operating expenses, including the management fee but excluding
interest, taxes, brokerage commissions, expenses of registering and
qualifying the Fund and its shares under federal and state laws and
regulations, and extraordinary expenses, exceed 0.45% of its average daily
net assets. (If the Fund offers an additional class of shares in the
future, this expense limitation would not apply to expenses arising
pursuant to a Rule 12b-1 or Shareholder Servicing plan with respect to that
class of shares.) Pursuant to the investment advisory contract, the Adviser
waived 0.32% of its Management Fee for the fiscal year ending March 31,
1999. In addition, the Adviser voluntarily waived 0.05% of its Management
Fee. The Adviser may terminate this voluntary waiver at any time at its
sole discretion. The Management Fee paid by the Fund (after the contractual
and voluntary waivers) was 0.03% for the fiscal year ending March 31, 1999.
3 Although not contractually obligated to do so, the Shareholder Services
Provider voluntarily elected not to accrue or charge its Shareholder
Services Fee during the year ended March 31, 1999. The Shareholder Services
Provider can terminate this voluntary waiver at any time at its sole
discretion. The Shareholder Services Fee paid (after the voluntary waiver)
was 0.00% for the year ending March 31, 1999.
</TABLE>
EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund 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 operating expenses are based upon the contractually imposed expense
limitation of 0.45% shown above. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year $ 46
3 Years $ 144
5 Years $ 252
10 Years $ 567
What are the Fund's Investment Strategies?
The Fund invests in a portfolio of U.S. Treasury and government agency
securities maturing in 13 months or less. These investments include repurchase
agreements collateralized fully by U.S. Treasury and government agency
securities. The Fund also makes loans of federal funds to federally insured
depository institutions. By operating policy, the Fund limits depository
institutions receiving the loans to those the Adviser deems to be adequately
capitalized with a short-term rating of Prime-1 by Moody's Investors Services,
Inc. The Fund has a dollar weighted average maturity of 90 days or less;
ordinarily, the Fund will have a dollar weighted average maturity between one
and seven days.
The Fund limits its investments to those that would enable it to qualify as a
permissible investment for national banks, federal savings associations and
federal credit unions. In addition, the Fund seeks to qualify as a liquid
investment under the rules of the Office of Thrift Supervision.
What are the Principal Securities in Which the Fund Invests?
TREASURY AND AGENCY SECURITIES
U.S. Treasury and government agency 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. The Fund invests primarily in
the following types of U.S. government securities:
* Treasury securities are direct obligations of the federal government of
the United States.
* 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.
LOANS OF FEDERAL FUNDS
Loans of federal funds are unsecured loans of money held in the Federal Reserve
System to federally insured depository institutions. Typically, the term of
these loans is one day. Loans of federal funds are subject to credit risk.
INVESTMENT RATINGS
PRIME-1-Depository institutions (or related supporting institutions) receiving
Prime-1 commercial paper ratings by Moody's Investors Services, Inc. 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; and
* Well established access to a range of financial markets and assured sources of
alternate liquidity.
What are the Specific Risks of Investing in the Fund?
Although there are many factors which may affect an investment in the Fund, the
principal risks of investing in a U.S. government money market fund are
described below.
INTEREST RATE RISK
* 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 RISK
* A substantial part of the Fund's portfolio may be comprised of fixed income
securities and loans by companies in the banking industry. As a result, the Fund
will be more susceptible to any economic, business, political, or other
developments which generally affect these issuers.
CREDIT RISK
* Credit risk is the possibility that an issuer will default on a security or
transaction 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 and issuers 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 or issuer
has not received a rating, the Fund must rely entirely upon 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.
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. NAV is
determined at 2:00 p.m. 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 $25,000. There is no
required minimum subsequent investment amount.
An account may be opened with a smaller amount as long as the $25,000 minimum is
reached within 90 days. 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 markets the Shares described in this prospectus to
federally insured depository institutions, including banks, saving associations
and credit unions. 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).
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 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.
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.
Shareholders of the Fund will not be permitted to make third party payments from
their accounts with the Trust.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption request to your investment professional by the end of
regular trading on the NYSE (normally 4 p.m. Eastern time). The redemption
amount you will receive is based upon the next calculated NAV after the Fund
receives the order from your investment professional.
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 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.
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; or
* your redemption will be sent to an address of record that was changed within
the last 30 days.
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.
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
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. 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 Trustees 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 total 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 0.40% of the Fund's
average daily net assets. Under the investment advisory contract, which is
subject to annual renewal by the Fund's Board of Trustees, the Adviser will
waive the amount, limited to the amount of the advisory fee, by which the Fund's
aggregate annual operating expenses, including the investment advisory fee but
excluding interest, taxes, brokerage commissions, expenses of registering or
qualifying the Fund and its shares under federal and state laws and regulations,
expenses of withholding taxes, and extraordinary expenses exceed 0.45% of its
daily net assets.
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 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
A Special Meeting of the Trust's shareholders was held on March 22, 1999. On
January 21, 1999, the record date for shareholders voting at the meeting, there
were 266,446,926 total outstanding shares. The following items were considered
by shareholders and the results of their voting were as follows:
1. ELECTION OF TRUSTEES:
<TABLE>
<CAPTION>
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
NAMES FOR AGAINST NON-VOTES TO VOTE
<S> <C> <C> <C> <C>
Thomas G. Bigley 251,810,331 14,636,595
John T. Conroy, Jr. 251,810,331 14,636,595
Nicholas P. Constantakis 251,810,331 14,636,595
John F. Cunningham 251,810,331 14,636,595
J. Christopher Donahue 251,810,331 14,636,595
Peter E. Madden 251,810,331 14,636,595
Charles F. Mansfield, Jr. 251,810,331 14,636,595
John E. Murray, Jr., J.D., S.J.D. 251,810,331 14,636,595
John S. Welsh 251,810,331 14,636,595
</TABLE>
1 The following Directors of the Trust continued their terms as Directors of
the Trust: John F. Donohue, Lawrence D. Ellis, and Marjorie P. Smuts.
2. TO RATIFY THE SELECTION OF DELOITTE & TOUCHE LLP AS THE TRUST'S INDEPENDENT
AUDITORS.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
251,582,084 228,246 14,636,595
3. TO MAKE CHANGES TO THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES.
a. To make non-fundamental, and to amend, the Trust's fundamental investment
policy regarding maturity of money market instruments.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
235,662,518 10,259,559 20,524,849
b. To make non-fundamental, and to amend, the Trust's fundamental investment
policy regarding investing in restricted securities.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
219,214,455 31,668,388 15,564,081
c. To make non-fundamental the Trust's fundamental investment policy prohibiting
investment in securities to exercise control of an issuer.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
234,064,591 16,818,253 15,564,081
d. To make non-fundamental, and to amend, the Trust's ability to invest in the
securities of other investment companies.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
233,351,372 17,531,472 15,564,081
e. To revise in the Trust's fundamental investment policy regarding borrowing to
permit the purchase of securities while borrowings are outstanding.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
237,299,639 13,583,205 15,564,081
4. TO ELIMINATE CERTAIN OF THE TRUST'S FUNDAMENTAL INVESTMENT POLICIES.
a. To remove the Trust's fundamental investment policy on investing in new
issuers.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
220,717,218 30,165,625 15,564,081
b. To remove the Trust's fundamental investment policy on investing in c. oil,
gas and minerals.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
197,133,450 53,404,394 15,909,081
c. To remove the Trust's fundamental investment policy on investing in issuers
whose securities are owned by Officers and Trustees.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
197,966,185 52,916,659 15,564,081
d. To remove the Trust's fundamental investment policy on investing in options.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
223,931,818 26,951,026 15,564,081
e. To remove the Trust's fundamental investment policy regarding short-term
liquidity requirements.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
240,332,504 10,550,339 15,564,081
f. To remove the Trust's fundamental investment policy regarding concentration
and to reserve freedom to concentrate investments in the banking industry.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
246,845,863 4,036,980 15,564,081
5. TO APPROVE A CLARIFYING AMENDMENT TO THE TRUST'S INVESTMENT ADVISORY
AGREEMENT TO EXCLUDE RULE 12B-1 FEES AND SHAREHOLDER SERVICE FEES FROM THE
EXPENSE CAP.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
230,440,398 10,312,518 25,694,009
6. TO APPROVE AN AMENDMENT AND RESTATE-MENT TO THE TRUST'S
DECLARATION OF TRUST TO REQUIRE THE APPROVAL OF A "1940 ACT" MAJORITY OF THE
OUTSTANDING VOTING SHARES IN THE EVENT OF THE SALE AND CONVEYANCE OF THE ASSETS
OF THE TRUST TO ANOTHER TRUST OR CORPORATION.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
231,349,479 4,442,670 30,654,776
7. TO APPROVE A PROPOSED AGREEMENT AND PLAN OF REORGANIZATION BETWEEN THE TRUST
AND MONEY MARKET OBLIGATIONS TRUST, ON BEHALF OF ITS SERIES, LIQUID CASH TRUST
(THE "NEW FUND"), WHEREBY THE NEW FUND WOULD ACQUIRE ALL OF THE ASSETS OF THE
TRUST IN EXCHANGE FOR SHARES OF THE NEW FUND TO BE DISTRIBUTED PRO RATA BY THE
TRUST TO ITS SHAREHOLDERS IN COMPLETE LIQUIDATION AND TERMINATION OF THE TRUST.
ABSTENTIONS WITHHELD
AND BROKER AUTHORITY
FOR AGAINST NON-VOTES TO VOTE
228,670,408 7,258,547 30,517,970
Financial Information
The following Financial Highlights will help you understand the Fund's financial
performance for its past five fiscal years, or since inception, if the life of
the Fund is shorter. 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 this prospectus.
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors Report on page 21.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 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 0.05 0.06 0.05 0.06 0.05
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.05) (0.06) (0.05) (0.06) (0.05)
NET ASSET VALUE,
END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 5.25% 5.59% 5.35% 5.84% 4.88%
RATIOS TO AVERAGE
NET ASSETS:
Expenses 0.15% 0.15% 0.15% 0.16% 0.16%
Net investment income 5.19% 5.48% 5.27% 5.72% 4.64%
Expense waiver/reimbursement 2 0.37% 0.37% 0.39% 0.38% 0.39%
SUPPLEMENTAL DATA:
Net assets, end of period
(000 omitted) $441,168 $508,795 $489,363 $595,471 $313,679
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See Notes which are an integral part of the Financial Statements
Portfolio of Investments
MARCH 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
REPURCHASE AGREEMENTS-100.1% 1
$ 15,000,000 Bankers Trust Co., New
York, 5.080%, dated
3/31/1999, due 4/1/1999 $ 15,000,000
71,800,000 Barclays de Zoete Wedd
Securities, Inc.,
4.920%, dated 3/31/1999,
due 4/1/1999 71,800,000
65,000,000 Bear, Stearns and Co.,
4.970%, dated 3/31/1999,
due 4/1/1999 65,000,000
15,000,000 Bear, Stearns and Co.,
5.050%, dated 3/31/1999,
due 4/1/1999 15,000,000
15,000,000 CIBC Wood Gundy
Securities Corp.,
4.875%, dated 3/31/1999,
due 4/1/1999 15,000,000
15,000,000 Credit Suisse First
Boston, Inc., 4.950%,
dated 3/31/1999, due
4/1/1999 15,000,000
15,000,000 Deutsche Morgan
Grenfell, Inc., 4.920%,
dated 3/31/1999, due
4/1/1999 15,000,000
15,000,000 Donaldson, Lufkin and
Jenrette Securities
Corp., 4.900%, dated
3/31/1999, due 4/1/1999 15,000,000
15,000,000 First Chicago Capital
Markets, Inc., 4.900%,
dated 3/31/1999, due
4/1/1999 15,000,000
15,000,000 First Union Capital
Markets, 4.900%, dated
3/31/1999, due 4/1/1999 15,000,000
15,000,000 Furman Selz Financial
Services, 5.000%, dated
3/31/1999, due 4/1/1999 15,000,000
15,000,000 Goldman Sachs Group, LP,
5.100%, dated 3/31/1999,
due 4/1/1999 15,000,000
15,000,000 Greenwich Capital
Markets, Inc., 4.920%,
dated 3/31/1999, due
4/1/1999 15,000,000
15,000,000 Morgan Stanley Group,
Inc., 5.000%, dated
3/31/1999, due 4/1/1999 15,000,000
15,000,000 Nationsbanc Montgomery
Securities, Inc.,
5.080%, dated 3/31/1999,
due 4/1/1999 15,000,000
20,000,000 PaineWebber Group, Inc.,
5.050%, dated 3/31/1999,
due 4/1/1999 20,000,000
15,000,000 Paribas Corp., 5.080%,
dated 3/31/1999, due
4/1/1999 15,000,000
15,000,000 Salomon Smith Barney
Holdings, Inc., 5.030%,
dated 3/31/1999, due
4/1/1999 15,000,000
15,000,000 Societe Generale
Securities Corp.,
4.950%, dated 3/31/1999,
due 4/1/1999 15,000,000
15,000,000 Toronto Dominion
Securities (USA), Inc.,
4.950%, dated 3/31/1999,
due 4/1/1999 15,000,000
15,000,000 Warburg Dillon Reed LLC,
4.920%, dated 3/31/1999,
due 4/1/1999 15,000,000
15,000,000 Westdeutsche Landesbank
Girozentrale, 4.920%,
dated 3/31/1999,
due 4/1/1999 15,000,000
TOTAL REPURCHASE
AGREEMENTS 441,800,000
TOTAL INVESTMENTS (AT
AMORTIZED COST) 2 $ 441,800,000
</TABLE>
1 The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
2 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($441,168,020) at March 31, 1999.
The following acronyms are used throughout this portfolio:
LLC -Limited Liability Company
LP -Limited Partnership
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MARCH 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at amortized
cost and value $ 441,800,000
Cash 31,426
Income receivable 60,977
Receivable for shares
sold 33,811
Deferred expenses 1,300
TOTAL ASSETS 441,927,514
LIABILITIES:
Payable for shares
redeemed $ 14,850
Income distribution
payable 744,644
TOTAL LIABILITIES 759,494
Net assets for
441,168,020 shares
outstanding $ 441,168,020
NET ASSET VALUE,
OFFERING PRICE AND
REDEMPTION PROCEEDS PER
SHARE:
$441,168,020 /
441,168,020 shares
outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MARCH 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 28,978,708
EXPENSES:
Investment advisory fee $ 2,170,162
Administrative personnel and services fee 409,076
Custodian fees 48,163
Directors'/Trustees' fees 14,217
Auditing fees 13,185
Legal fees 5,486
Portfolio accounting fees 94,521
Share registration costs 19,701
Printing and postage 34,861
Insurance premiums 3,083
Miscellaneous 15,453
TOTAL EXPENSES 2,827,908
Waiver of investment advisory fee (1,994,391)
Net expenses 833,517
Net investment income $ 28,145,191
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS:
Net investment income $ 28,145,191 $ 24,153,901
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (28,145,191) (24,153,901)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 4,874,304,605 4,455,297,994
Net asset value of shares
issued to shareholders
in payment of
distributions declared 20,055,640 17,495,927
Cost of shares redeemed (4,961,987,297) (4,453,362,197)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (67,627,052) 19,431,724
Change in net assets (67,627,052) 19,431,724
NET ASSETS:
Beginning of period 508,795,072 489,363,348
End of period $ 441,168,020 $ 508,795,072
</TABLE>
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MARCH 31, 1999
ORGANIZATION
Liquid Cash Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
Effective April 26, 1999, the Trust became a portfolio of the Money Market
Obligations Trust. Money Market Obligations Trust consists of 13 portfolios. The
financial statements included herein are only those of the Trust. The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The investment objective of the Trust is
stability of principal and current income consistent with stability of
principal.
SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS
The Trust's use of the amortized cost method to value its portfolio securities
is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS
It is the policy of the Trust to require the custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System, or to have
segregated within the custodian bank's vault, all securities held as collateral
under repurchase agreement transactions. Additionally, procedures have been
established by the Trust to monitor, on a daily basis, the market value of each
repurchase agreement's collateral to ensure that the value of collateral at
least equals the repurchase price to be paid under the repurchase agreement
transaction.
The Trust will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Trust's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Trust could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Distributions to shareholders are recorded on the ex- dividend
date.
FEDERAL TAXES
It is the Trust's policy to comply with the provisions of the Code applicable to
regulated investment companies and to distribute to shareholders each year
substantially all of its income. Accordingly, no provisions for federal tax are
necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Trust may engage in when-issued or delayed delivery transactions. The Trust
records when-issued securities on the trade date and maintains security
positions such that sufficient liquid assets will be available to make payment
for the securities purchased. Securities purchased on a when- issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At March
31, 1999, capital paid-in aggregated $441,168,020. Transactions in shares were
as follows:
YEAR ENDED MARCH 31 1999 1998
Shares sold 4,874,304,605 4,455,297,994
Shares issued to
shareholders in payment
of distributions
declared 20,055,640 17,495,927
Shares redeemed (4,961,987,297) (4,453,362,197)
NET CHANGE RESULTING
FROM SHARE TRANSACTIONS (67,627,052) 19,431,724
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Effective March 31, 1999, Federated Research Corp. merged into Federated
Advisers. Subsequently, on March 31, 1999, Federated Advisers changed its name
to Federated Investment Management Company. Federated Investment Management
Company, the Trust's investment adviser (the "Adviser"), receives for its
services an annual investment advisory fee equal to 0.40% of the Trust's average
daily net assets. The Adviser may voluntarily choose to waive any portion of its
fee. The Adviser can modify or terminate this voluntary waiver at any time at
its sole discretion.
ADMINISTRATIVE FEE
Federated Services Company ("FServ"), under the Administrative Services
Agreement, provides the Trust with administrative personnel and services. The
fee paid to FServ is based on the level of average aggregate daily net assets of
all funds advised by subsidiaries of Federated Investors, Inc. for the period.
The administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Trust will pay FSSC up to 0.25% of average daily
net assets of the Trust for the period. The fee paid to FSSC is used to finance
certain services for shareholders and to maintain shareholder accounts. For the
period ended March 31, 1999, the Trust shares did not incur a shareholder
services fee.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES
FServ, through its subsidiary FSSC, serves as transfer and dividend disbursing
agent for the Trust. The fee paid to FSSC is based on the size, type, and number
of accounts and transactions made by shareholders.
PORTFOLIO ACCOUNTING FEES
FServ maintains the Trust's accounting records for which it receives a fee. The
fee is based on the level of the Trust's average daily net assets for the
period, plus out-of-pocket expenses.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Trust could be adversely affected
if the computer systems used by the Trust's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Trust's Adviser and administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and obtain reasonable assurances that comparable
steps are being taken by each of the Trust's other service providers. At this
time, however, there can be no assurance that these steps will be sufficient to
avoid any adverse impact to the Trust.
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
LIQUID CASH TRUST:
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments of Liquid Cash Trust (the "Trust") as of March 31,
1999, the related statement of operations for the year then ended, the
statements of changes in net assets for the years then ended March 31, 1999 and
1998, and the financial highlights for the periods presented. These financial
statements and financial highlights are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned at
March 31, 1999, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Liquid Cash Trust as
of March 31, 1999, the results of its operations, the changes in its net assets
and its financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
May 14, 1999
[Graphic]
Federated
World-Class Investment Manager
PROSPECTUS
Liquid Cash Trust
A Portfolio of Money Market Obligations Trust
MAY 31, 1999
A Statement of Additional Information (SAI) dated May 31, 1999, is incorporated
by reference into this prospectus. Additional information about the Fund's
investments is contained in the Fund's Semi-Annual Report to shareholders as it
becomes available. To obtain the SAI, 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 visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
[Graphic]
Federated
Liquid Cash Trust
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. 811-5950
Cusip 60934N757
8050206A (5/99)
[Graphic]
STATEMENT OF ADDITIONAL INFORMATION
Liquid Cash Trust
A Portfolio of Money Market Obligations Trust
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectus for Liquid Cash Trust (Fund), dated May
31, 1999. Obtain the prospectus without charge by calling 1-800- 341-7400.
MAY 31, 1999
[Graphic]
Federated
World-Class Investment Manager
Liquid Cash Trust
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
8050206B (5/99)
[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
Massachusetts Partnership Law 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
Addresses 12
How is the Fund Organized?
The Fund is a diversified portfolio of Money Market Obligations Trust (Trust).
The Trust is an open-end, management investment company that was established
under the laws of the Commonwealth of Massachusetts on October 3, 1988. The
Trust may offer separate series of shares representing interests in separate
portfolios of securities. The Fund, which was established on April 11, 1980, was
reorganized as a portfolio of the Trust on April 30, 1999.
Effective March 31, 1999, Federated Research, Adviser to the Fund, merged
into Federated Investment Management Company, formerly, Federated
Advisers.
Securities in Which the Fund Invests
In pursuing its investment strategy, the Fund may invest in the following
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 fixed or adjusted periodically. The issuer must also 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. Securities with higher credit risks generally have
higher yields. A security's yield will increase or decrease depending upon
whether it costs less (a "discount") or more (a "premium") than the principal
amount. Under normal market conditions, securities with longer maturities will
also have higher yields. 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.
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. Investors regard treasury securities as having the lowest credit
risk.
AGENCY SECURITIES
Agency securities are issued or guaranteed by a federal agency or other
government sponsored entity acting under federal authority (a "GSE"). Some GSEs
are supported by the full faith and credit of the United States. Other GSEs
receive support through federal subsidiaries, 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. Investors
regard agency securities as having low credit risks, but not as low as Treasury
securities.
For purposes of repurchase agreements, the Fund treats mortgage backed
securities guaranteed by GSEs as agency securities.
MORTGAGE BACKED SECURITIES
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates, maturities
and other terms. Mortgages may have fixed or adjustable interest rates.
Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer deducts
its fees and expenses and passes the balance of the payments onto the
certificate holders once a month. Holders of pass-through certificates receive a
pro rata share of all payments and prepayments from the underlying mortgages. As
a result, the holders assume all the prepayment risks of the underlying
mortgages. The Fund uses mortgage backed securities as collateral for repurchase
agreements.
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.
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 market 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
bonds' coupon payments from the right to receive the bonds' principal due at
maturity, a process known as coupon stripping. Treasury STRIPs are the most
common forms of stripped zero coupon securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest its assets in securities of other investment companies as an
efficient means of carrying out its investment policies. It should be noted that
investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Fund in shares of other investment companies
may be subject to such duplicate expenses. At the present time, the Fund expects
that its investments in other investment companies will be limited to shares of
money market funds, including funds affiliated with the Fund's investment
adviser.
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 market
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 derivatives contracts or
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 entering into an offsetting contract or terminating a special
transaction. This may cause the Fund to miss favorable trading opportunities or
to realize losses on derivative contracts or 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.
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 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. 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 upon 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.
SECTOR RISKS
* A substantial part of the Fund's portfolio may be comprised of fixed income
securities and loans by companies in the banking industry. As a result, the Fund
will be more susceptible to any economic, business political, or other
developments which generally affect these issuers.
INVESTMENT POLICIES
It is a nonfundamental policy of the Fund to limit its dollar weighted average
maturity to 90 days or less.
It is a nonfudamental policy of the Fund to invest only in certain securities
which qualify as short-term liquid assets under Section 566.1 (12 CFR 566.1) of
the Regulations of the Office of Thrift Supervision. The types of securities
which currently qualify as short-term liquid assets consist of the following:
* Time deposits in a Federal Home Loan Bank, the Bank for Savings and Loan
Association, Chicago, Illinois, or the Savings Banks Trust Company, New
York, New York;
* Except as the Office may otherwise direct in a specific case, obligations
of the United States;
* Obligations issued or fully guaranteed as to principal and interest by a
Federal Home Loan Bank, the Federal National Mortgage Association, the
Government National Mortgage Association, a Bank for Cooperatives (including the
National Bank for Cooperatives or the United Bank for Cooperatives), a Farm
Credit Bank, The Tennessee Valley Authority, The Export-Import Bank of the
United States, The Commodity Credit Corporation, the Federal Financing Bank, the
Student Loan Marketing Association, the Federal Home Loan Mortgage Association,
or The National Credit Union Association;
* Savings accounts of an insured financial institution, including loans of
unsecured day(s) funds to an insured financial institution (i.e., federal funds
or similar unsecured loans if such accounts are: (a) negotiable and have
remaining maturities of one year or less, (b) not negotiable and have remaining
maturities of 90 days or less, (c) not withdrawable without notice and the
notice periods do not exceed 90 days; loans of unsecured day(s) funds maturing
in six months or less; and the priority of claims of a lender of unsecured
day(s) funds is not subordinated to claims of depositors in the borrower
thereof;
* Bankers acceptances of an insured financial institution if (a) the total of
all such acceptances held by the same financial institution does not exceed 0.25
of one percent of the total deposits of such financial institution (as shown by
its last published statement of condition preceding the date of acceptance), and
(b) such acceptances have remaining maturities of nine months or less;
* Shares or certificates in certain open-end management investment companies
registered with the Securities and Exchange Commission under the Investment
Company Act of 1940; and
* Certain mortgage-related securities.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any money market instruments short or purchase any money
market instruments on margin but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of money market instruments.
BORROWING MONEY
The Fund will not borrow money except as a temporary measure for extraordinary
or emergency purposes and then only in amounts not in excess of 5% of the value
of its total assets. In addition, the Fund may enter into reverse repurchase
agreements and otherwise borrow up to one-third of the value of its total
assets, including the amount borrowed, in order to meet redemption requests
without immediately selling portfolio instruments. This latter practice is not
for investment leverage but solely to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of portfolio
instruments would be inconvenient or disadvantageous. Interest paid on borrowed
funds will not be available for investment. The Fund will liquidate any such
borrowings as soon as possible. However, during the period any reverse
repurchase agreements are outstanding, but only to the extent necessary to
assure completion of the reverse repurchase agreements, the Fund will restrict
the purchase of portfolio instruments to money market instruments maturing on or
before the expiration date of the reverse repurchase agreements.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to secure
permitted borrowings. In those cases, it may mortgage, pledge, or hypothecate
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the borrowing.
UNDERWRITING
The Fund will not engage in underwriting of securities issued by others.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may participate in the
federal funds market and purchase or hold money market instruments, including
repurchase agreements, permitted by its investment objective and policies.
ISSUING SENIOR SECURITIES
The Fund will not issue senior securities, except as permitted by the investment
objective and policies and investment limitations of the Fund. 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
restriction. The Fund did not borrow money, pledge securities, or invest in
reverse repurchase agreements in excess of 5% of the value of its net assets
during the last fiscal year and has no present intent to do so in the coming
fiscal year.
The above limitations cannot be changed unless authorized 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.
INDUSTRY CONCENTRATION
The Fund will not invest 25% or more of its total assets in any one industry.
However, investing in U.S. government securities and domestic bank instruments
shall not be considered investments in any one industry.
INVESTING FOR CONTROL
The Fund will not invest in securities of a company for the purpose of
exercising control or management.
INVESTING IN RESTRICTED SECURITIES
The Fund may invest in restricted securities. Restricted securities are any
securities which are subject to restrictions on resale under federal securities
law. The Fund may invest without limitation in restricted securities which are
determined to be liquid under criteria established by the Trustees. To the
extent that restricted securities are not determined to be liquid, the Fund will
limit their purchase, together with other illiquid securities, to not more than
10% of its net assets.
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. For example, with limited exceptions, the Rule prohibits
the investment of more than 5% of the Fund's total assets in the securities of
any one issuer, although the Fund's investment limitation only requires such 5%
diversification with respect to 75% of its assets. The Fund will invest more
than 5% of its assets in any one issuer only under the circumstances permitted
by the Rule. The Fund will also 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 Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
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 Trustees must establish procedures reasonably designed to stabilize the net
asset value per share, as computed for purposes of distribution and redemption,
at $1.00 per share, taking into account current market conditions and the 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 Trustees will decide what, if any,
steps should be taken if there is a difference of more than 0.5 of 1% between
the two values. The Trustees will take any steps they consider appropriate (such
as redemption in kind or shortening the average portfolio maturity) to minimize
any material dilution or other unfair results arising from differences between
the two methods of determining net asset value.
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.
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.
Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Fund. To protect its
shareholders, the Fund has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Fund.
In the unlikely event a shareholder is held personally liable for the Fund's
obligations, the Fund is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Fund will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Fund. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Fund itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
Account and Share Information
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust 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.
Trustees 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 Trust's outstanding shares
of all series entitled to vote.
As of May 7, 1999, the following shareholders owned of record, beneficially, or
both, 5% or more of outstanding Shares: Athens Federal S&L Assn., Athens, TN,
owned approximately 31,010,121 (6.58%) Shares and Central Bank & Trust Co.,
Lexington, KY, owned approximately 84,600,000 (17.95%) Shares.
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
Trust's other portfolios will be separate from those realized by the Fund.
Who Manages and Provides Services to the Fund?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust'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 Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year, and the total compensation received from the Federated
Fund Complex for the most recent calendar year. The Trust is comprised of 13
funds and the Federated Fund Complex is comprised of 54 investment companies,
whose investment advisers are affiliated with the Fund's Adviser.
As of April 7, 1999, the Fund's Board and Officers as a group owned less than 1%
of the Fund's outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<TABLE>
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
JOHN F. DONAHUE*+ Chief Executive Officer and $0 $0 for the Trust and 54 other
Birth Date: July 28, 1924 Director or Trustee of the investment companies in the
Federated Investors Tower Federated Fund Complex; Fund Complex
1001 Liberty Avenue Chairman and Director,
Pittsburgh, PA Federated Investors, Inc.;
CHAIRMAN and TRUSTEE 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 $18,351 $113,860.22 for the Trust and
Birth Date: February 3, 1934 Federated Fund Complex; 54 other investment companies
15 Old Timber Trail Director, Member of Executive in the Fund Complex
Pittsburgh, PA Committee, Children's Hospital
TRUSTEE of Pittsburgh; formerly: Senior Partner, Ernst
& Young LLP; Director, MED 3000 Group, Inc.;
Director, Member of Executive Committee,
University of Pittsburgh.
JOHN T. CONROY, JR. Director or Trustee of the $20,189 $125,264.48 for the Trust and
Birth Date: June 23, 1937 Federated Fund Complex; 54 other investment companies
Wood/IPC Commercial Dept. President, Investment in the Fund Complex
John R. Wood Associates, Inc. Properties Corporation; Senior
Realtors Vice President, John R. Wood
3255 Tamiami Trail North and Associates, Inc.,
Naples, FL Realtors; Partner or Trustee
TRUSTEE in private real estate
ventures in Southwest Florida;
formerly: President, Naples
Property Management, Inc. and
Northgate Village Development
Corporation.
NICHOLAS P. CONSTANTAKIS ++ Director or Trustee of the $0 $47,958.02 for the
Birth Date: September 3, 1939 Federated Fund Complex; Trust and 39 other investment
175 Woodshire Drive Formerly: Partner, Andersen companies in the Fund complex
Pittsburgh, PA Worldwide SC.
TRUSTEE
JOHN F. CUNNINGHAM ++ Director or Trustee of some of $0 $0 for the Trust and 43 other
Birth Date: March 5,1943 the Federated Fund Complex; investment companies in the
353 El Brillo Way Chairman, President and Chief Fund Complex
Palm Beach, FL Executive Officer, Cunningham
TRUSTEE & Co., Inc.; Trustee
Associate, Boston College;
Director, EMC Corporation;
formerly: Director, Redgate
Communications.
Retired: 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 $18,351 $113,860.22 for the Trust and
Birth Date: October 11, 1932 Federated Fund Complex; 54 other investment companies
3471 Fifth Avenue Professor of Medicine, in the Fund Complex
Suite 1111 University of Pittsburgh;
Pittsburgh, PA Medical Director, University
TRUSTEE of Pittsburgh Medical Center
Downtown; Hematologist, Oncologist, and
Internist, University of Pittsburgh Medical
Center; Member, National Board of Trustees,
Leukemia Society of America.
PETER E. MADDEN Director or Trustee of the $18,351 $113,860.22 for the Trust and
Birth Date: March 16, Federated Fund Complex; 54 other investment companies
1942 One Royal Palm Way formerly: Representative, in the Fund Complex
100 Royal Palm Way Commonwealth of Massachusetts
Palm Beach, FL General Court; President,
TRUSTEE State Street Bank and Trust
Company and State Street
Corporation. Retired:
Director, VISA USA and VISA
International; Chairman and
Director, Massachusetts
Bankers Association; Director,
Depository Trust Corporation.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
CHARLES F. MANSFIELD, JR. Director or Trustee of some of $0 $0 for the Trust and 43 other
Birth Date: April 10, 1945 the Federated Fund Complex; investment companies in the
80 South Road Management Consultant. Fund Complex
Westhampton Beach, NY Retired: Chief Executive
TRUSTEE Officer, PBTC International
Bank; 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., Director or Trustee of The $18,351 $113,860.22 for the Trust and
S.J.D. Federated Fund Complex; 54 other investment companies
Birth Date: December 20, 1932 President, Law Professor, in the Fund Complex
President, Duquesne University Duquesne University;
Pittsburgh, PA Consulting Partner, Mollica &
TRUSTEE Murray.
Retired: 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 $18,351 $113,860.22 for the Trust and
Birth Date: June 21, 1935 Federated Fund Complex; Public 54 other investment companies
4905 Bayard Street Relations/ Marketing/ in the Fund Complex
Pittsburgh, PA Conference Planning.
TRUSTEE Retired: National
Spokesperson, Aluminum Company
of America; business owner.
JOHN S. WALSH Director or Trustee of some of $0 $0 for the Trust and 40 other
Birth Date: November 28, 1957 the Federated Fund Complex; investment companies in the
2007 Sherwood Drive President and Director, Heat Fund Complex
Valparaiso, IN Wagon, Inc.; President and
TRUSTEE Director, Manufacturers
Products, Inc.; President, Portable Heater
Parts, a division of Manufacturers Products,
Inc.; Director, Walsh & Kelly, Inc.; formerly,
Vice President, Walsh & Kelly, Inc.
J. CHRISTOPHER DONAHUE*+ President or Executive Vice $0 $0 for the Trust and 22 other
Birth Date: April 11, 1949 President of the Federated investment companies in the
Federated Investors Tower Fund Complex; Director or Fund Complex
1001 Liberty Avenue Trustee of some of the Funds
Pittsburgh, PA in the Federated Fund Complex;
PRESIDENT and TRUSTEE President and Director,
Federated Investors, Inc.; President and
Trustee, Federated Investment Management
Company; President and Director, Federated
Investment Counseling and 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 $0 $0 for the Trust and 1 other
Birth Date: October 22, 1930 the Funds in the Federated investment company in the
Federated Investors Tower Fund Complex; President, Fund Complex
1001 Liberty Avenue Executive Vice President and
Pittsburgh, PA Treasurer of some of the Funds
EXECUTIVE VICE PRESIDENT in the Federated Fund Complex;
Vice Chairman, Federated
Investors, Inc.; Vice
President, Federated
Investment Management Company
and 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 $0 $0 for the Trust and 54 other
Birth Date: October 26, 1938 Secretary of the Federated investment companies in the
Federated Investors Tower Fund Complex; Executive Vice Fund Complex
1001 Liberty Avenue President, Secretary, and
Pittsburgh, PA Director, Federated Investors,
EXECUTIVE VICE PRESIDENT Inc.; Trustee, Federated
and SECRETARY Investment Management Company;
Director, Federated Investment Counseling and
Federated Global Investment Management Corp.;
Director, Federated Services Company;
Director, Federated Securities Corp.
RICHARD J. THOMAS Treasurer of the Federated $0 $0 for the Trust and 54 other
Birth Date: June 17, 1954 Fund Complex; Vice President investment companies in the
Federated Investors Tower Funds Financial Services Fund Complex
1001 Liberty Avenue Division, Federated Investors,
Pittsburgh, PA Inc.; formerly: various
TREASURER management positions within
Funds Financial Services
Division of Federated
Investors, Inc.
RICHARD B. FISHER President or Vice President of $0 $0 for the Trust and 6 other
Birth Date: May 17, 1923 some of the Funds in the investment companies in the
Federated Investors Tower Federated Fund Complex; Fund Complex
1001 Liberty Avenue Director or Trustee of some of
Pittsburgh, PA the Funds in the Federated
VICE PRESIDENT Fund Complex; Executive Vice
President, Federated
Investors, Inc.; Chairman and
Director, Federated Securities
Corp.
<CAPTION>
NAME TOTAL
BIRTH DATE AGGREGATE COMPENSATION
ADDRESS PRINCIPAL OCCUPATIONS COMPENSATION FROM TRUST
POSITION WITH TRUST FOR PAST FIVE YEARS FROM TRUST AND FUND COMPLEX
<S> <C> <C> <C>
WILLIAM D. DAWSON, III Chief Investment Officer of $0 $0 for the Trust and 41 other
Birth Date: March 3, 1949 this Fund and various other investment companies in the
Federated Investors Tower Funds in the Federated Fund Fund Complex
1001 Liberty Avenue Complex; Executive Vice
Pittsburgh, PA President, Federated
CHIEF INVESTMENT OFFICER 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 $0 $0 for the Trust and 6 other
Birth Date: September 15, 1959 President of the Trust. investment companies in the
Federated Investors Tower Ms. Cunningham joined Fund Complex
1001 Liberty Avenue Federated Investors in 1981
Pittsburgh, PA and has been a Senior
VICE PRESIDENT Portfolio Manager and a Senior
Vice President of the Fund's
investment adviser since 1997.
Ms. Cunningham served as a
Portfolio Manager and a Vice
President of the investment
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.
SUSAN R. HILL Susan R. Hill is Vice $0 $0 for the Trust and 9 other
Birth Date: June 20, 1963 President of the Trust. investment companies in the
Federated Investors Tower Ms. Hill joined Federated Fund Complex
1001 Liberty Avenue Investors in 1990 and has been
Pittsburgh, PA a Portfolio Manager since 1993
VICE PRESIDENT and a Vice President of the
Fund's investment adviser
since 1997. Ms. Hill was a
Portfolio Manager and an
Assistant Vice President of
the investment adviser from
1994 until 1997. Ms. Hill is a
Chartered Financial Analyst
and received an M.S. in
Industrial Administration from
Carnegie Mellon University.
MARY JO OCHSON Mary Jo Ochson is Vice $0 $0 for the Trust and 7 other
Birth Date: September 12, 1953 President of the Trust. investment companies in the
Federated Investors Tower Ms. Ochson joined Federated Fund Complex
1001 Liberty Avenue Investors in 1982 and has been
Pittsburgh, PA a Senior Portfolio Manager and
VICE PRESIDENT a Senior Vice President of the
Fund's investment adviser
since 1996. From 1988 through
1995, Ms. Ochson served as a
Portfolio Manager and a Vice
President of the Fund's
investment adviser. Ms. Ochson
is a Chartered Financial
Analyst and received her
M.B.A. in Finance from the
University of Pittsburgh.
</TABLE>
+ Mr. Donahue is the father of J. Christopher Donahue, President of the
Trust.
++ Messrs. Constantakis, Cunningham, Mansfield, and Walsh became members of the
Board of Trustees 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. They did not receive any fees as of the fiscal year end of the Trust.
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 Fund 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 Fund.
The Adviser must waive the portion of its advisory fee that increases the Fund's
aggregate annual operating expenses above 0.45% of its average daily net assets.
The Fund's operating expenses include the advisory fee but exclude interest,
taxes, brokerage commissions, expenses of registering the Fund and its shares
under federal and state laws, expenses of withholding taxes, and extraordinary
expenses.
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.
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>
AVERAGE AGGREGATE DAILY
MAXIMUM NET ASSETS OF THE FEDERATED
ADMINISTRATIVE FEE 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 AUDITORS
Deloitte & Touche LLP is the independent public accountant for the Fund.
FEES PAID BY THE FUND FOR SERVICES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31 1999 1998 1997
<S> <C> <C> <C>
Advisory Fee Earned $ 2,170,162 $ 1,762,293 $ 1,964,969
Advisory Fee Reduction 1,994,391 1,638,556 1,896,759
Administrative Fee 409,076 332,474 371,211
Shareholder Services Fee None None None
</TABLE>
For the fiscal years ended March 31, 1999, 1998 and 1997, fees paid by the Fund
for services are prior to the Fund's reorganization as a portfolio of the Trust
on April 30, 1999.
If the Fund's expenses are capped at a particular level, the cap does not
include reimbursement to the Fund of any expenses incurred by shareholders who
use the transfer agent's subaccounting facilities.
How Does the Fund Measure Performance?
The Fund may advertise Share performance by using the Securities and Exchange
Commission's (SEC) 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, five and ten-year periods ended March 31, 1999.
Yield and Effective Yield are given for the 7-day period ended March 31, 1999.
<TABLE>
<CAPTION>
7 -DAY PERIOD 1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Total Return N/A 5.25% 5.38% 5.56%
Yield 4.80% N/A N/A N/A
Effective Yield 4.91% N/A N/A N/A
</TABLE>
Performance of the Fund shown is prior to its reorganization as a portfolio of
the Trust on April 30, 1999.
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 Funds; 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 of 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.
Addresses
LIQUID CASH TRUST
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
(R)
1001 Liberty Avenue
(/R)
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Investment Management Company
Federated Investors Tower
(R)
1001 Liberty Avenue
(/R)
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
125 Summer Street
Boston, MA 02110-1617
