MUNICIPAL CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
PROSPECTUS
Municipal Cash Series II (the "Fund") is a non-diversified portfolio of Cash
Trust Series II (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to provide current income
exempt from federal regular income tax consistent with stability of principal by
investing primarily in short-term municipal securities.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated July 31,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated July 31, 1994
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Variable Rate Demand Notes 4
Participation Interests 4
Municipal Leases 4
Ratings 4
Credit Enhancement 5
Demand Features 5
Restricted and Illiquid Securities 5
When-Issued and Delayed
Delivery Transactions 5
Municipal Securities 5
Temporary Investments 6
Investment Risks 6
Non-Diversification 6
Investment Limitations 7
Regulatory Compliance 7
CASH TRUST SERIES II INFORMATION 8
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Management of Cash Trust Series II 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Distribution of Fund Shares 9
Distribution Plan 9
Other Payments to Financial Institutions 9
Administration of the Fund 10
Administrative Services 10
Custodian 10
Transfer Agent and Dividend
Disbursing Agent 10
Legal Counsel 10
Independent Auditors 10
NET ASSET VALUE 10
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INVESTING IN THE FUND 11
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Share Purchases 11
Through a Financial Institution 11
Directly from the Distributor 11
Minimum Investment Required 11
What Shares Cost 11
Conversion to Federal Funds 12
Subaccounting Services 12
Systematic Investment Program 12
Certificates and Confirmations 12
Dividends 12
Capital Gains 13
REDEEMING SHARES 13
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Through a Financial Institution 13
Receiving Payment 13
By Check 13
By Wire 13
Directly from the Fund 13
By Mail 13
Checkwriting 14
Debit Card 14
Systematic Withdrawal Program 14
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
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Voting Rights 15
Massachusetts Partnership Law 15
TAX INFORMATION 15
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Federal Income Tax 15
Pennsylvania Corporate and
Personal Property Taxes 17
Other State and Local Taxes 17
PERFORMANCE INFORMATION 17
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FINANCIAL STATEMENTS 18
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INDEPENDENT AUDITORS' REPORT 33
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ADDRESSES Inside Back Cover
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................. None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds as applicable).................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None
Exchange Fee.......................................................................... None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)...................................................... 0.22%
12b-1 Fee............................................................................. 0.20%
Other Expenses........................................................................ 0.37%
Total Fund Operating Expenses(2)................................................. 0.79%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The Total Fund Operating Expenses would have been 1.07% absent the voluntary
waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "CASH TRUST SERIES II INFORMATION." WIRE-TRANSFERRED REDEMPTIONS
OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- -------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 invest-
ment assuming (1) 5% annual return and (2) redemption
at the end of each time period........................ $8 $25 $44 $ 98
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
MUNICIPAL CASH SERIES II
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 33.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
---------------------------------------------
1994 1993 1992 1991*
-------- -------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
- -------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.02 0.02 0.04 0.01
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LESS DISTRIBUTIONS
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Dividends to shareholders from net
investment income (0.02) (0.02) (0.04) (0.01)
- ------------------------------------------- ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
- ------------------------------------------- ------ ------ ------ ------
TOTAL RETURN** 1.99 % 2.29 % 3.72 % 1.19 %
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------
Expenses 0.79 % 0.77 % 0.74 % 0.47 %(a)
- -------------------------------------------
Net investment income 1.97 % 2.23 % 3.56 % 4.68 %(a)
- -------------------------------------------
Expense waiver/reimbursement(b) 0.28 % 0.50 % 0.50 % 0.39 %(a)
- -------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------
Net assets, end of period (000 omitted) $131,770 $104,563 $65,628 $34,048
- -------------------------------------------
</TABLE>
* Reflects operations for the period from February 13, 1991 (date of initial
public investment) to May 31, 1991.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charge if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 14, 1990. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This prospectus relates only to the
short-term municipal securities portfolio of the Trust, known as Municipal Cash
Series II. The Fund is designed for customers of financial institutions such as
banks, fiduciaries, custodians of public funds, investment advisers and
broker/dealers, as a convenient means of accumulating an interest in a
professionally managed non-diversified portfolio limited to money market
instruments maturing in thirteen months or less. A minimum initial investment of
$25,000 is required. Subsequent investments must be in amounts of at least $500.
The Fund may not be a suitable investment for retirement plans since it invests
in municipal securities.
The Fund attempts to stabilize the value of a share at $1.00. Fund shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax consistent with stability of principal.
(Federal regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
Interest income of the Fund that is exempt from federal regular income tax
retains its tax-free status when distributed to the Fund's shareholders.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
non-diversified portfolio of municipal securities (as defined below) with
remaining maturities of thirteen months or less. The average maturities of these
securities, computed on a dollar-weighted basis, will be 90 days or less.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Trustees without the approval of shareholders. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in debt obligations issued by
or on behalf of states, territories and possessions of the United States,
including the District of Columbia, and any political subdivision or financing
authority of any of these, the income from which is, in the opinion of qualified
legal counsel, exempt from federal regular income tax ("Municipal Securities").
Examples of Municipal Securities include, but are not limited to:
- tax and revenue anticipation notes ("TRANs") issued to finance working
capital needs in anticipation of receiving taxes or other revenues;
- bond anticipation notes ("BANs") that are intended to be refinanced
through a later issuance of longer-term bonds;
- municipal commercial paper and other short-term notes;
- variable rate demand notes;
- municipal bonds (including bonds having serial maturities and
pre-refunded bonds) and leases;
- construction loan notes insured by the Federal Housing Administration and
financed by the Federal or Government National Mortgage Associations; and
- participation, trust and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term
Municipal Securities that have variable or floating interest rates and
provide the Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
municipal interest index or a published interest rate or interest rate
index. Most variable rate demand notes allow the Fund to demand the
repurchase of the security on not more than seven days prior notice. Other
notes only permit the Fund to tender the security at the time of each
interest rate adjustment or at other fixed intervals. See "Demand
Features." The Fund treats variable rate demand notes as maturing on the
later of the date of the next interest adjustment or the date on which the
Fund may next tender the security for repurchase.
PARTICIPATION INTERESTS. The Fund may purchase interests in Municipal
Securities from financial institutions such as commercial and investment
banks, savings and loan associations, and insurance companies. These
interests may take the form of participations, beneficial interests in a
trust, partnership interests or any other form of indirect ownership that
allows the Fund to treat the income from the investment as exempt from
federal income tax. The Fund invests in these participation interests in
order to obtain credit enhancement or demand features that would not be
available through direct ownership of the underlying Municipal Securities.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities, and may be considered to be illiquid. They may take the
form of a lease, an installment purchase contract, a conditional sales
contract, or a participation interest in any of the above.
RATINGS. The Municipal Securities in which the Fund invests must either be rated
in one of the two highest short-term rating categories by one or more nationally
recognized statistical rating organizations ("NRSROs") or be of comparable
quality to securities having such ratings. A NRSRO's two highest rating
categories are determined without regard for sub-categories and gradations. For
example, securities rated SP-1+, SP-1 or SP-2 by Standard & Poor's Corporation
("S&P"), MIG1 or MIG2 by Moody's Investors Service, Inc. ("Moody's"), or FIN-1+,
FIN-1 and FIN-2 by Fitch Investors Service, Inc. ("Fitch") are all considered to
be rated in one of the two highest short-term rating categories. The Fund will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in one of the two highest short-term
rating categories; currently, such
securities must be rated by two NRSROs in one of their two highest categories.
See "Regulatory Compliance."
CREDIT ENHANCEMENT. Certain of the Funds acceptable investments have been credit
enhanced by a guaranty, letter of credit or insurance. The Fund typically
evaluates the credit quality and ratings of credit enhanced securities based
upon the financial condition and ratings of the party providing the credit
enhancement (the "credit enhancer"), rather than the issuer. However, credit
enhanced securities will not be treated as having been issued by the credit
enhancer for diversification purposes, unless the Fund has invested more than
10% of its assets in securities issued, guaranteed or otherwise credit enhanced
by the credit enhancer, in which case the securities will be treated as having
been issued both by the issuer and the credit enhancer. The bankruptcy,
receivership or default of the credit enhancer will adversely affect the quality
and marketability of the underlying security.
The Fund may have more than 25% of its total assets invested in securities
credit enhanced by banks.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. The demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
invest pursuant to its investment objective and policies but which are subject
to restrictions on resale under federal securities laws. Under criteria
established by the Board of Trustees, certain restricted securities are
considered liquid. To the extent that restricted securities are found to be
illiquid, the Fund will limit their purchase, together with other securities
considered to be illiquid, including municipal leases, to 10% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term
municipal securities on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
MUNICIPAL SECURITIES. Municipal Securities are generally issued to finance
public works, such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal Securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these corporations
to locate within the sponsoring communities and thereby increases local
employment.
The two principal classifications of Municipal Securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
TEMPORARY INVESTMENTS. As a matter of investment policy which cannot be changed
without approval of shareholders, the Fund invests its assets so that at least
80% of its annual interest income is exempt from federal regular income tax.
However, from time to time on a temporary basis, or when the investment adviser
determines that market conditions call for a temporary defensive posture, the
Fund may invest in short-term tax-exempt or taxable temporary investments. These
temporary investments include: obligations issued by or on behalf of municipal
or corporate issuers having the same quality characteristics as municipal
securities purchased by the Fund; marketable obligations issued or guaranteed by
the U.S. government, its agencies or instrumentalities; instruments issued by a
U.S. branch of a domestic bank or other deposit institutions having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment; repurchase agreements (arrangements in which the organization
selling the Fund a temporary investment agrees at the time of sale to repurchase
it at a mutually agreed upon time and price); and prime commercial paper rated
A-1 by Standard & Poor's Corporation, Prime-1 by Moody's, or F-1 by Fitch and
other short-term credit instruments.
Although the Fund is permitted to make taxable temporary investments, there is
no current intention of generating income subject to federal regular income tax.
INVESTMENT RISKS
Yields on Municipal Securities depend on a variety of factors, including: the
general conditions of the short-term municipal note market and of the municipal
bond market; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of the Fund to achieve its
investment objective also depends on the continuing ability of the issuers of
Municipal Securities and demand features, or the guarantors of either, to meet
their obligations for the payment of interest and principal when due.
Litigation or legislation could affect the validity of certain municipal
securities or their tax-free interest. For example, litigation challenging the
validity of systems of financing public education has been initiated or
adjudicated in a number of states. The Fund will not investigate such
legislation or litigation unless it deems it necessary to do so. To the extent
that litigation or legislation has an adverse effect on the ratings ascribed to
a particular municipal security, there is some protection to the Fund's
shareholders from the Fund's policy of buying only high-rated securities.
NON-DIVERSIFICATION
The Fund is a non-diversified portfolio of an investment company. As such, there
is no limit on the percentage of assets which can be invested in any single
issuer. An investment in the Fund, therefore,
will entail greater risk than would exist in a diversified investment company
because the higher percentage of investments among fewer issuers may result in
greater fluctuation in the total market value of the Fund's portfolio. Any
economic, political, or regulatory developments affecting the value of the
securities in the Fund's portfolio will have a greater impact on the total value
of the portfolio than would be the case if the portfolio were diversified among
more issuers.
The Fund will attempt to minimize the risks associated with a non-diversified
portfolio so as not to impair its ability to stabilize its net asset value at
$1.00 per share by limiting, with respect to 75% of the Fund's total assets,
investments in one issuer to not more than 10% of the value of its total assets.
The total amount of the remaining 25% of the value of the Fund's total assets
could be invested in a single issuer if the investment adviser believes such a
strategy to be prudent. In addition, the Fund intends to comply with Subchapter
M of the Internal Revenue Code. This undertaking requires among other things,
that the aggregate value of all investments in any one issuer (except U.S.
government obligations, cash, and cash items) which exceed 5% of the Fund's
total assets not exceed 50% of the value of its total assets.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitations, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations become effective.
The Fund will not:
- with respect to securities comprising 75% of its total assets, invest
more than 10% of its total assets in the securities of any one issuer
(other than cash or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities); nor
- invest more than 5% of the value of its total assets in securities of
issuers (or in the alternative, guarantors, where applicable) that have
records of less than three years of continuous operations.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its 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, as amended. In particular, the Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. 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 Rule 2a-7. The
Fund may change these operational policies to reflect changes in the laws and
regulations without the approval of its shareholders.
CASH TRUST SERIES II INFORMATION
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MANAGEMENT OF CASH TRUST SERIES II
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees of
the Board of Trustees are responsible for managing the business affairs of the
Trust and for exercising all of the powers of the Trust except those reserved
for the shareholders. The Executive Committee of the Board of Trustees handles
the Board's responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. The adviser
may voluntarily choose to waive a portion of its fee or reimburse the Fund
for certain operating expenses. The adviser can terminate this voluntary
waiver of its advisory fee at any time and at its sole discretion. This
does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Mary Jo Ochson has been the Fund's portfolio manager since November, 1990
(date of Fund's inception). Ms. Ochson joined Federated Investors in 1982
and has been a Vice President of the Fund's investment adviser since 1988.
Ms. Ochson served as an Assistant Vice President of the investment adviser
from 1984 until 1988. Ms. Ochson is a Chartered Financial Analyst and
received her M.B.A. in Finance from the University of Pittsburgh.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined risk averse investment
philosophy serve approxi-
mately 3,500 client institutions nationwide. Through these same client
institutions, individual shareholders also have access to this same level
of investment expertise.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. According to the provisions of a distribution plan adopted
pursuant to Investment Company Act Rule 12b-1, the distributor may select
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers and brokers/dealers to provide distribution and/or
administrative services as agents for their clients or customers. Administrative
services may include, but are not limited to the following functions: providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding the Fund; assisting
clients in changing dividend options; account designations, and addresses; and
providing such other services as the Fund reasonably requests.
The distributor will pay financial institutions a fee based upon shares of the
Fund owned by their clients or customers. The schedules of such fees and the
basis upon which such fees will be paid will be determined from time to time by
the Board of Trustees of the Trust, provided that for any period the total
amount of fees representing an expense to the Trust shall not exceed an annual
rate of .20 of 1% of the average net asset value of shares of the Fund held
during the period by clients or customers of financial institutions. The current
annual rate of such fees is .20 of 1%. Any fees paid by the distributor with
respect to shares of the Fund pursuant to the distribution plan will be
reimbursed by the Trust from the assets of the Fund in accordance with the
previously agreed schedule of fees.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the administrative
services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as brokers or dealers pursuant to state law.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution Plan, certain financial
institutions may be compensated by the adviser or its affiliates for the
continuing investment of customers' assets in certain funds, including the Fund,
advised by those entities. These payments will be made directly by the
distributor or adviser from their assets, and will not be made from the assets
of the Fund or by the assessment of a sales load on shares.
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include
sponsoring sales, educational and training seminars for their employees,
providing sales literature, and engineering computer software programs that
emphasize the attributes of the Fund. Such assistance will be predicated upon
the amount of shares the financial institution sells or may sell, and/or upon
the type and nature of sales or marketing support furnished by the financial
institution. Any payments made by the distributor may be reimbursed by the
Fund's investment adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services provides these at an annual rate which relates
to the average aggregate daily net assets of the Federated Funds as specified
below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY NET
ADMINISTRATIVE FEE ASSETS OF THE FEDERATED FUNDS
- --------------------- ------------------------------------
<S> <C>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to receive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, and Dickstein, Shapiro & Morin, L.L.P. Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing its portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange is open for
business. Shares of the Fund may be purchased through a financial institution
which has a sales agreement with the distributor or directly from the
distributor, Federated Securities Corp. The Fund reserves the right to reject
any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase shares of
the Fund. Orders through a financial institution are considered received when
the Fund receives payment by wire or converts payment by check from the
financial institution into federal funds. It is the financial institution's
responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase shares
directly from the distributor. To do so: complete and sign the new account form
available from the Fund; enclose a check made payable to Municipal Cash Series
II; and mail both to Municipal Cash Series II, P.O. Box 8604, Boston, MA
02266-8604.
The order is considered received after the check is converted by the transfer
agent's bank, State Street Bank and Trust Company ("State Street Bank"), into
federal funds. This is generally the next business day after State Street Bank
receives the check.
To purchase shares of the Fund by wire, call the Fund. All information needed
will be taken over the telephone, and the order is considered received when
State Street Bank receives payment by wire. Federal funds should be wired as
follows: Federated Services Company, c/o State Street Bank and Trust Company,
Boston, Massachusetts 02266-8604; Attention: EDGEWIRE; For Credit to: Municipal
Cash Series II; Fund Number (this number can be found on the account statement
or by contacting the Fund); Group Number or Order Number; Nominee or Institution
Name; ABA Number 011000028. Shares cannot be purchased by wire on Columbus Day,
Veterans' Day, or Martin Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000, unless the investment is
in a retirement plan, in which case the minimum initial investment is $1,000.
Subsequent investments must be in amounts of at least $500. An institutional
investor's minimum investment will be calculated by averaging all accounts it
maintains with the Fund. The Fund may not be a suitable investment for
retirement plans since it invests in municipal securities.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Fund.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
SUBACCOUNTING SERVICES
Financial institutions are encouraged to open single master accounts. However,
certain financial institutions may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent reserves the right to charge a fee based on the level of
subaccounting services rendered. Financial institutions holding Fund 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 provided which may be related
to the ownership of Fund shares. This prospectus should, therefore, be read
together with any agreement between the customer and the financial institution
with regard to the services provided, the fees charged for those services, and
any restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $500. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through his financial institution or directly through the Fund.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
3:00 p.m. (Eastern time) earn dividends that day. Shares purchased by check
begin earning dividends on the next business day after the check is converted by
the transfer agent into federal funds. Unless shareholders request cash payments
on an application or by writing to Federated Securities Corp., dividends are
automatically reinvested on payment dates in additional shares of the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemptions can be made through a financial
institution or directly from the Fund. Redemption requests must be received in
proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value next determined after the Fund receives the
redemption request from the financial institution. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the Fund. The financial institution may
charge customary fees and commissions for this service. If, at any time, the
Fund shall determine it necessary to terminate or modify this method of
redemption, shareholders will be promptly notified.
Before a financial institution may request redemption by telephone on behalf of
a shareholder, an authorization form permitting the Fund to accept redemption
requests by telephone must first be completed. Telephone redemption instructions
may be recorded. In the event of drastic economic or market changes, a
shareholder may experience difficulty in redeeming by telephone. If such a case
should occur, another method of redemption, such as "By Mail," should be
considered.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
RECEIVING PAYMENT. Pursuant to instructions from the financial institution,
redemptions will be made by check or by wire.
BY CHECK. Normally, a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
BY WIRE. Proceeds for redemption requests received before 12:00 noon
(Eastern time) will be wired the same day but will not be entitled to that
day's dividend. Redemption requests received after 12:00 noon (Eastern
time) will receive that day's dividends and will be wired the following
business day.
DIRECTLY FROM THE FUND
BY MAIL. Any shareholder may redeem Fund shares by sending a written request to
Federated Services Company. The written request should include the shareholder's
name, the Fund name, the
account number, and the share or dollar amount requested. If share certificates
have been issued, they must be properly endorsed and should be sent by
registered or certified mail with the written request. Shareholders should
contact the Fund for assistance in redeeming by mail.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
Individual shareholders requesting a redemption of $50,000 or more, a redemption
of any amount to be sent to an address other than that on record with the Fund,
or a redemption payable other than to the shareholder of record must have
signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
CHECKWRITING. At the shareholder's request, Federated Services Company will
establish a checking account for redeeming Fund shares. The cost for providing
this service will be $10.00 per year. With a Fund checking account, shares may
be redeemed simply by writing a check. The redemption will be made at the net
asset value on the date that Federated Services Company presents the check to
the Fund. A check may not be written to close an account. If a shareholder
wishes to redeem shares and have the proceeds available, a check may be written
and negotiated through the shareholder's bank. Checks should never be sent to
the transfer agent to redeem shares. Cancelled checks are sent to the
shareholder each month. For further information, contact the Fund.
DEBIT CARD. At the shareholder's request, a debit card is available. A fee may
be charged for this service. For further information, contact Federated
Securities Corp.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an Automated Clearing House ("ACH") member.
Depending upon the amount of the withdrawal payments and the amount of dividends
paid with respect to Fund Shares, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. A shareholder may apply for participation
in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below the required minimum value of
$25,000 due to shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER 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 each portfolio
in the Trust have equal voting rights except that only shares of the Fund are
entitled to vote on matters affecting only the Fund. As a Massachusetts business
trust, the Trust is not required to hold annual shareholder meetings.
Shareholder approval will be sought only for certain changes in the Trust's or
the Fund's operation and for the election of Trustees under certain
circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument that the Trust or its
Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for obligations of
the Trust, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of the Trust will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal bonds. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on some municipal bonds are included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.
The alternative minimum tax, up to 28% of alternative minimum taxable income for
individuals and 20% for corporations, applies when it exceeds the regular tax
for the taxable year. Alternative minimum taxable income is equal to the regular
taxable income of the taxpayer increased by certain "tax preference" items not
included in regular taxable income and reduced by only a portion of the
deductions allowed in the calculation of the regular tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax preference item for both individuals and
corporations. Unlike traditional governmental purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, should it
purchase any such bonds, a portion of the Fund's dividends may be treated as a
tax preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds will become subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax preference item.
"Adjusted current earnings" is based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES
In the opinion of Houston, Houston & Donnelly, counsel to the Fund:
- the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
- Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
OTHER STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax advisers.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield, effective yield and
tax-equivalent yield.
The yield of the Fund represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment shown as a percentage of the
investment. The effective yield is calculated similarly to the yield but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of the Fund is calculated similarly to the yield, but is
adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a specific tax rate.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
MUNICIPAL CASH SERIES II
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--99.0%
- ---------------------------------------------------------------------
ALABAMA--5.3%
-------------------------------------------------------
$1,000,000 Abbeville and Mobile, AL, IDB Monthly VRDNs (Great
Southern Wood Preserving Co.)/(SouthTrust Bank of
Alabama LOC)/(Subject to AMT) A-1 $ 1,000,000
-------------------------------------------------------
1,000,000 Birmingham, AL, IDA Weekly VRDNs (Altec Industries,
Inc.)/(Wachovia Bank of GA LOC)/(Subject to AMT) P-1 1,000,000
-------------------------------------------------------
3,000,000 Homewood, AL, IDB Weekly VRDNs (Mountain Brook,
Ltd.)/(SouthTrust Bank of Alabama LOC) P-1 3,000,000
-------------------------------------------------------
1,645,000 Mobile, AL, Downtown Redevelop Authority, 2.70% Annual
TOBs (Series 1992)/(Mitchell Project)/(Trust Company
Bank LOC)/(Subject to AMT), Mandatory Tender 12/1/94 P-1 1,645,000
-------------------------------------------------------
305,000 Muscle Shoals, AL, IDB Weekly VRDNs (Whitesell
Manufacturing)/(SouthTrust Bank of Alabama LOC)/
(Subject to AMT) P-1 305,000
------------------------------------------------------- ------------
Total 6,950,000
------------------------------------------------------- ------------
</TABLE>
<TABLE>
<C> <S> <C> <C>
ARKANSAS--0.8%
-------------------------------------------------------
1,000,000 City of Springdale, AR, Weekly VRDNs, (Newlywed Food
Project)/(Mellon Bank, Pittsburgh, LOC)/(Subject to
AMT) A-1 1,000,000
------------------------------------------------------- ------------
CALIFORNIA--6.3%
-------------------------------------------------------
5,000,000 California School Cash Reserve Program Authority, 3.40%
TANs (Series 1993A)/(California School Boards Pooled
Loan Program), 7/5/94 SP-1+ 5,002,259
-------------------------------------------------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
CALIFORNIA--CONTINUED
-------------------------------------------------------
$2,400,000 Riverside County, CA, IDA Weekly VRDNs (1991 Series
A)/(Golden West Homes Project)/(Wells Fargo Bank N.A.,
San Francisco LOC)/(Subject to AMT) VMIG-1 $ 2,400,000
-------------------------------------------------------
1,000,000 Sacramento County, CA, Housing Authority, 3.10% TOBs
(Series 1992-A)/(Shadewood Apartments Project)/(General
Electric Capital Corp. LOC)/(Subject to AMT), Mandatory
Tender 12/1/94 A-1+ 1,000,000
------------------------------------------------------- ------------
Total 8,402,259
------------------------------------------------------- ------------
COLORADO--2.2%
-------------------------------------------------------
3,000,000 Denver, (City & County), CO, Weekly VRDNs (Series
1992F)/(Bank of Montreal LOC)/(Subject to AMT) A-1+ 3,000,000
------------------------------------------------------- ------------
ILLINOIS--5.4%
-------------------------------------------------------
2,345,000 Illinois Development Finance Corp., Weekly VRDNs
(Olympic Steel)/(National City Bank, Cleveland LOC)/
(Subject to AMT) P-1 2,345,000
-------------------------------------------------------
4,720,000 Illinois HDA Weekly VRDNs (Series PT-7)/(Dai-Ichi
Kangyo Bank, Ltd. LOC)/(Subject to AMT) VMIG-1 4,720,000
------------------------------------------------------- ------------
Total 7,065,000
------------------------------------------------------- ------------
INDIANA--3.7%
-------------------------------------------------------
3,785,000 Avilla, IN, IDR Weekly VRDNs (Group Dekko
International, Inc.)/(Bank One, Indianapolis LOC) P-1 3,785,000
-------------------------------------------------------
1,070,000 Lawrence, IN, EDA Monthly VRDNs (H & H Steel)/
(Bank One, Indianapolis N.A. LOC)/(Subject to AMT) P-1 1,070,000
------------------------------------------------------- ------------
Total 4,855,000
------------------------------------------------------- ------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
KENTUCKY--3.9%
-------------------------------------------------------
$1,000,000 Kentucky Pollution Abatement and Water Resources Daily
VRDNs (Toyota Motors Co. Guaranty)/(Subject to AMT) A-1+ $ 1,000,000
-------------------------------------------------------
2,100,000 Kentucky Pollution Abatement and Water Resources Daily
VRDNs (Toyota Motors Co. Guaranty)/(Subject to AMT) A-1+ 2,100,000
-------------------------------------------------------
2,000,000 Scottsville, KY, IDA, 3.50% Semi-Annual TOBs (Sumitomo
Electric Wiring Systems)/(Sumitomo Bank, Ltd. LOC),
Optional Tender 11/1/94 A-1 2,000,000
------------------------------------------------------- ------------
Total 5,100,000
------------------------------------------------------- ------------
LOUISIANA--2.1%
-------------------------------------------------------
2,750,000 East Baton Rouge, LA, SFM 2.90% Quarterly TOBs (Series
1994)/(Escrowed in Treasuries), Mandatory Tender
6/30/94 NR(1) 2,750,000
------------------------------------------------------- ------------
MARYLAND--2.6%
-------------------------------------------------------
3,450,000 Anne Arundel County, MD, 2.60% CP (Series 1988)/
(Baltimore Gas & Electric Co.-Guaranty)/(Subject to
AMT), Mandatory Tender 7/20/94 VMIG-1 3,450,000
------------------------------------------------------- ------------
MASSACHUSETTS--3.0%
-------------------------------------------------------
1,300,000 New Bedford, MA, 3.75% BANs (Fleet National Bank BPA),
8/12/94 P-1 1,302,390
-------------------------------------------------------
1,825,000 Worcester, MA, 3.25% BANs (Subject to AMT), 8/24/94 NR(4) 1,825,340
-------------------------------------------------------
845,000 Worcester, MA, 3.99% BANs (Lot B)/(Subject to AMT),
8/24/94 NR(4) 845,458
------------------------------------------------------- ------------
Total 3,973,188
------------------------------------------------------- ------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MINNESOTA--4.0%
-------------------------------------------------------
2,245,000 Minneapolis/St. Paul HS Finance Board Revenue Bond
(Series 88A), 2.80% Quarterly TOBs (Minn/St. Paul
Family Housing Program Phase V1)/(GNMA Collateralized)/
(Subject to AMT)/(Meridian Bank BPA), Optional Tender
8/1/94 NR(1) 2,245,000
-------------------------------------------------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
MINNESOTA--CONTINUED
-------------------------------------------------------
$1,500,000 Minnesota State Higher Education Coordinating Board
Weekly VRDNs (Student Loan Program)/(Subject to AMT) VMIG-1 $ 1,500,000
-------------------------------------------------------
1,460,000 Plymouth, MN, Weekly VRDNs (Nuaire, Inc.)/(Norwest Bank
Minnesota LOC)/(Subject to AMT) P-1 1,460,000
------------------------------------------------------- ------------
Total 5,205,000
------------------------------------------------------- ------------
NEVADA--1.9%
-------------------------------------------------------
2,500,000 State of Nevada Department of Commerce, IDA Weekly
VRDNs (Smithey-Oasis Co. Project)/(Mellon Bank N.A.
LOC) P-1 2,500,000
------------------------------------------------------- ------------
NEW HAMPSHIRE--6.7%
-------------------------------------------------------
4,500,000 New Hampshire Business Finance Authority, 2.95% (Annual
TOBs Pollution Control Revenue Bonds)/(New England
Power Co. Guaranty)/(Subject to AMT), Mandatory Tender
7/1/94 A-1 4,500,000
-------------------------------------------------------
2,300,000 New Hampshire HEFA Weekly VRDNs (Series 1994)/
(Colby-Sawyer College Issue)/(BayBank, MA LOC),
7/1/2014 P-2 2,300,000
-------------------------------------------------------
2,000,000 New Hampshire, IDA, 3.05% Semi-Annual TOBs (United
Illuminating Co.)/(Barclays Bank PLC LOC)/(Subject to
AMT), Mandatory Tender 9/1/94 A-1+ 2,000,000
------------------------------------------------------- ------------
Total 8,800,000
------------------------------------------------------- ------------
NEW JERSEY--1.5%
-------------------------------------------------------
1,975,000 Pennsuaken Township, NJ, 4.00% BANs, 1/10/95 NR 1,976,736
------------------------------------------------------- ------------
NEW YORK--1.5%
-------------------------------------------------------
2,000,000 Longwood Central School District, NY, 3.25% TANs,
6/30/94 NR 2,000,230
------------------------------------------------------- ------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
NORTH CAROLINA--2.7%
-------------------------------------------------------
$1,680,000 Burke Co., NC, IDA PCR Weekly VRDNs (Norwalk Furniture
& Hickory Furniture Corp.)/(Branch Banking & Trust
LOC)/(Subject to AMT) P-1 $ 1,680,000
-------------------------------------------------------
1,000,000 Halifax County, NC, Industrial Facilities & Pollution
Control Financing Authority Daily VRDNs (Series 1993)/
(Westmoreland-LG&E Partners)/(Credit Suisse LOC)/
(Subject to AMT) A-1+ 1,000,000
-------------------------------------------------------
850,000 Orange County, NC, Industrial Facilities & PCA Weekly
VRDNs (Mebene Packaging Corp.)/(First Union National
Bank LOC)/(Subject to AMT) A-1 850,000
------------------------------------------------------- ------------
Total 3,530,000
------------------------------------------------------- ------------
OKLAHOMA--4.1%
-------------------------------------------------------
1,400,000 Broken Arrow, OK, EDA Weekly VRDNs (Blue Bell
Creameries, Inc.)/(Banque Nationale de Paris LOC) VMIG-1 1,400,000
-------------------------------------------------------
4,000,000 Southeastern OK, Industries Authority, Weekly VRDNs
Solid Waste Revenue Bonds (Weyerhauser, Inc. Guaranty)/
(Subject to AMT) A-1 4,000,000
------------------------------------------------------- ------------
Total 5,400,000
------------------------------------------------------- ------------
PENNSYLVANIA--8.0%
-------------------------------------------------------
1,600,000 Allegheny County, PA, IDA, PCR, 3.35% CP (USX, Inc.)/
(Long Term Credit Bank of Japan, Ltd. LOC), Mandatory
Tender 8/11/94 A-2 1,600,000
-------------------------------------------------------
5,000,000 Clinton County, PA, IDA Solid Waste Disposal Revenue
Bonds, 2.90% Annual TOBs (Series 1992A)/(International
Paper Co. Guaranty)/(Subject to AMT), Option Tender
1/15/95 A-2 5,000,000
-------------------------------------------------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
PENNSYLVANIA--CONTINUED
-------------------------------------------------------
$1,950,000 Pennsylvania, EDA Weekly VRDNs (Series G1)/
(Cyrogenics, Inc.)/(PNB, Pittsburgh LOC)/(Subject to
AMT) P-1 $ 1,950,000
-------------------------------------------------------
800,000 Pennsylvania, EDA Weekly VRDNs (Series F)/(Respironics,
Inc.)/(Pittsburgh National Bank LOC)/(Subject to AMT) P-1 800,000
-------------------------------------------------------
1,225,000 Philadelphia, PA, IDA, 3.00% Annual TOBs (Economy Inn
Project)/(Bank of Tokyo, Ltd. LOC), 7/1/94 P-1 1,225,000
------------------------------------------------------- ------------
Total 10,575,000
------------------------------------------------------- ------------
SOUTH CAROLINA--4.6%
-------------------------------------------------------
6,000,000 South Carolina Ports Authority Weekly VRDNs (Series
1994)/(South Carolina National Bank LOC)/(Subject to
AMT) A-1+ 6,000,000
------------------------------------------------------- ------------
TENNESSEE--1.4%
-------------------------------------------------------
1,000,000 Cocke County, TN, IDR Weekly VRDNs (GCI Inc.)/(Sanwa
Bank Ltd. LOC)/(Subject to AMT) P-1 1,000,000
-------------------------------------------------------
900,000 Paris City, TN, IDB Weekly VRDNs (Plumley-Mareigo,
Ltd.)/(Citizens Fidelity Bank LOC)/(Subject to AMT) P-1 900,000
------------------------------------------------------- ------------
Total 1,900,000
------------------------------------------------------- ------------
TEXAS--12.2%
-------------------------------------------------------
3,000,000 Brazos River, TX, PCR 3.35% Reference Bonds (Series
1994B)/(Texas Utilities Electric Co.)/(Canadian
Imperial Bank of Commerce, LOC)/(Subject to AMT),
Mandatory Tender 9/15/94 A-1+ 3,000,000
-------------------------------------------------------
3,130,000 Brazos River, TX, Harbor Navigation District, 3.05%
(Dow Chemical Co.-Guaranty)/(Subject to AMT), Mandatory
Tender 8/26/94 P-1 3,130,000
-------------------------------------------------------
3,000,000 Galveston, TX, IDC Weekly VRDNs (Series 1993)/(National
Westminster Bank, PLC LOC)/(Subject to AMT) A-1+ 3,000,000
-------------------------------------------------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
TEXAS--CONTINUED
-------------------------------------------------------
$1,900,000 Harris County, TX, IDA Weekly VRDNs (Precision General,
Inc.)/(Morgan Guaranty Trust Co., New York LOC)/
(Subject to AMT) A-1+ $ 1,900,000
-------------------------------------------------------
4,000,000 Harris County, TX, IDC 3.40% CP (Series 1987)/(Exxon
Corp.-Guaranty)/(Subject to AMT), Mandatory Tender
10/18/94 P-1 4,000,000
-------------------------------------------------------
1,000,000 Lubbock, TX, IDC Daily VRDNs (McLand Co., Inc.)/
(Nations Bank of Florida & Nations Bank of North
Carolina N.A. LOCs)/(Subject to AMT) A-1 1,000,000
------------------------------------------------------- ------------
Total 16,030,000
------------------------------------------------------- ------------
UTAH--1.5%
-------------------------------------------------------
2,000,000 Tooele County, UT, 3.30%, Waste Management (Union
Pacific Corp.-Guaranty)/(Subject to AMT), Mandatory
Tender 10/17/94 A-1 2,000,000
------------------------------------------------------- ------------
VIRGINIA--7.0%
-------------------------------------------------------
500,000 Greensville County, VA, IDA Weekly VRDNs (Purdue Farms,
Inc.)/(Morgan Guaranty Trust Co., New York
LOC)/(Subject to AMT) A-1+ 500,000
-------------------------------------------------------
1,555,000 Richmond, VA, Redevelopment and Housing Authority
Weekly VRDNs (Series B-6)/(Tobacco Row)/(Bayerische
Landesbank, Munich LOC)/(Subject to AMT) A-1+ 1,555,000
-------------------------------------------------------
3,200,000 Richmond, VA, Redevelopment and Housing Authority
Weekly VRDNs (Series B)/(Tobacco Row)/(Bayerische
Landesbank, Munich, LOC)/(Subject to AMT) VMIG1 3,200,000
-------------------------------------------------------
4,000,000 Virginia State Housing Development Authority, 2.80%
Annual TOBs (1993 Series I)/(Subject to AMT), Mandatory
Tender 11/4/94 A-1+ 4,000,000
------------------------------------------------------- ------------
Total 9,255,000
------------------------------------------------------- ------------
</TABLE>
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- ------------------------------------------------------- --------- ------------
<C> <S> <C> <C>
SHORT TERM MUNICIPAL SECURITIES--CONTINUED
- ---------------------------------------------------------------------
WISCONSIN--6.6%
-------------------------------------------------------
$3,150,000 Germantown, WI, IDA Weekly VRDNs (Zenith Sintered
Products Inc.)/(Bank One, Milwaukee LOC)/(Subject to
AMT) P-1 $ 3,150,000
-------------------------------------------------------
2,100,000 Plover Village, WI, Weekly VRDNs (Series 1994)/(Sirco
Manufacturing, Inc.)/(Norwest Bank, Minneapolis LOC)/
(Subject to AMT) P-1 2,100,000
-------------------------------------------------------
2,000,000 Plymouth, WI, IDA Weekly VRDNs (Great Lakes Cheese
of Wisconsin Project)/(Rabobank Nederland LOC)/
(Subject to AMT) P-1 2,000,000
-------------------------------------------------------
1,440,000 West Allis, WI, IDR 3.50% Semi-Annual TOBs (Renaisance
Faire Limited Partnership Project)/(American National
Bank, Chicago LOC)/(Subject to AMT), Optional Tender
7/1/94 P-1 1,440,000
------------------------------------------------------- ------------
Total 8,690,000
------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST (NOTE 2A) $130,407,413+
------------------------------------------------------- ------------
</TABLE>
+ Also represents cost for federal tax purposes.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($131,769,686)
at May 31, 1994.
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMT -- Alternative Minimum Tax
BANs -- Bond Anticipation Notes
BPA -- Bond Purchase Agreement
CP -- Commercial Paper
EDA -- Economic Development Authority
GNMA -- Government National Mortgage Association
HDA -- Hospital Development Authority
HEFA -- Health and Education Facilities Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDC -- Industrial Development Corporation
IDR -- Industrial Development Revenue
LOC -- Letter of Credit
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
SFM -- Single Family Mortgage
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments, at amortized cost and value (Note 2A) $130,407,413
- -------------------------------------------------------------------------------
Cash 570,753
- -------------------------------------------------------------------------------
Interest receivable 895,102
- -------------------------------------------------------------------------------
Receivable for fund shares sold 18,129
- -------------------------------------------------------------------------------
Deferred expenses (Note 2E) 40,006
- ------------------------------------------------------------------------------- ------------
Total assets 131,931,403
- -------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------
Dividends payable $102,014
- --------------------------------------------------------------------
Accrued expenses 59,703
- -------------------------------------------------------------------- --------
Total liabilities 161,717
- ------------------------------------------------------------------------------- ------------
NET ASSETS, for 131,769,686 shares of beneficial interest outstanding $131,769,686
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($131,769,686 / 131,769,686 shares of beneficial interest outstanding) $1.00
- ------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest income (Note 2B) $3,465,232
- ----------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------
Investment advisory fee (Note 4) $ 626,848
- ---------------------------------------------------------------------
Distribution fees (Note 4) 250,282
- ---------------------------------------------------------------------
Trustees' fees 4,071
- ---------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 246,535
- ---------------------------------------------------------------------
Custodian and portfolio accounting fees 53,871
- ---------------------------------------------------------------------
Transfer and dividend disbursing agent fees (Note 4) 26,374
- ---------------------------------------------------------------------
Fund share registration costs 75,629
- ---------------------------------------------------------------------
Auditing fees 14,615
- ---------------------------------------------------------------------
Legal fees 10,312
- ---------------------------------------------------------------------
Printing and postage 11,686
- ---------------------------------------------------------------------
Insurance premiums 7,094
- ---------------------------------------------------------------------
Miscellaneous 9,253
- --------------------------------------------------------------------- ----------
Total expenses 1,336,570
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 346,147
- --------------------------------------------------------------------- ----------
Net expenses 990,423
- ---------------------------------------------------------------------------------- ----------
Net investment income $2,474,809
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1994 1993
--------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 2,474,809 $ 2,674,468
- ------------------------------------------------------------- --------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2B)--
- -------------------------------------------------------------
Dividends to shareholders from net investment income (2,474,809) (2,674,468)
- ------------------------------------------------------------- --------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- -------------------------------------------------------------
Proceeds from sale of shares 1,279,506,572 787,537,022
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 2,011,384 2,050,356
- -------------------------------------------------------------
Cost of shares redeemed (1,254,311,439) (750,651,239)
- ------------------------------------------------------------- --------------- -------------
Change in net assets from Fund share transactions 27,206,517 38,936,139
- ------------------------------------------------------------- --------------- -------------
Change in net assets 27,206,517 38,936,139
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 104,563,169 65,627,030
- ------------------------------------------------------------- --------------- -------------
End of period $ 131,769,686 $ 104,563,169
- ------------------------------------------------------------- --------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Cash Trust Series II (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Trust
consists of two portfolios, one diversified and one non-diversified. The
Financial statements included herein present only those of the non-diversified
portfolio, Municipal Cash Series II (the "Fund"). The financial statements of
the other portfolio 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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Investment
Company Act of 1940.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount are amortized as required by the
Internal Revenue Code, as amended ("Code"). Distributions to shareholders are
recorded on the ex-dividend date.
C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its tax-exempt income.
Accordingly, no provision for federal tax is necessary.
D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis
are marked to market daily and begin earning interest in the settlement date.
E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to the
registration of its shares in its first fiscal year, excluding the initial
expenses of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from the
Fund's commencement date.
F. OTHER--Investment transactions are accounted for on the trade date.
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
(3) 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 May
31, 1994, capital paid in aggregated $131,769,686. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------
1994 1993
- -------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Shares sold 1,279,506,572 787,537,022
- --------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 2,011,384 2,050,356
- --------------------------------------------------------------
Shares redeemed (1,254,311,439) (750,651,239)
- -------------------------------------------------------------- -------------- --------------
Net change resulting from fund share transactions 27,206,517 38,936,139
- -------------------------------------------------------------- -------------- --------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to 0.50 of 1% of the Fund's average daily net assets. Adviser may voluntarily
choose to waive a portion of its fee. Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE-- Federated Administrative Services ("FAS") provides the Fund
with administrative personnel and services. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, the fee is
based on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period. The administrative fee
received during any fiscal year shall by at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940. Under the terms of the
Plan the Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur distribution expenses up to 0.20 of 1% of the average daily net assets of
the shares, annually, to reimburse the distributor.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The fee
is based on the size, type and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($18,628) and start-up
administrative service expenses ($82,502) were borne initially by FAS. The Fund
has agreed to reimburse FAS at an annual rate of .005 of 1% of average daily net
assets and .01 of 1% of average daily net assets for organizational and start-up
administrative expenses, respectively, until expenses initially borne by FAS are
fully reimbursed or the expiration of five years after January 25, 1991 the date
the Fund's portfolio first
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
became effective, whichever occurs earlier. For the year ended May 31, 1994, the
Fund paid FAS $6,204 and $12,409, respectively, pursuant to this agreement.
During the year ended May 31, 1994, the Fund engaged in purchase and sale
transactions with other affiliated funds pursuant to Rule 17a-7 of the
Investment Company Act of 1940 amounting to $420,200,000 and $471,247,120,
respectively. These purchases and sales were conducted on an arms length basis
and transacted for cash consideration only, at independent current market prices
and without brokerage commissions, fees or other remuneration.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of
CASH TRUST SERIES II and
Shareholders of MUNICIPAL CASH SERIES II:
We have audited the accompanying statement of assets and liabilities of
Municipal Cash Series II (one of the portfolios comprising Cash Trust Series
II), including the portfolio of investments, as of May 31, 1994, the related
statement of operations for the year then ended, the statement of changes in net
assets for the years ended May 31, 1994 and 1993 and the financial highlights
(see page 2 of the prospectus) for each of the years in the four-year period
ended May 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
May 31, 1994 by correspondence with the custodian. 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 Municipal Cash
Series II as of May 31, 1994, 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
Boston, Massachusetts
July 8, 1994
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Fund
Municipal Cash Series II Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
- ------------------------------------------------------------------------------------------------
</TABLE>
MUNICIPAL CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
PROSPECTUS
A Non-Diversified Portfolio of
Cash Trust Series II, An Open-End
Management Investment Company
July 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
147552103
0111205A (7/94)
MUNICIPAL CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Municipal Cash Series II
(the "Fund") dated July 31, 1994. This Statement is not a prospectus itself. To
receive a copy of the
prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 1
Temporary Investments 1
Investment Limitations 2
CASH TRUST SERIES II MANAGEMENT 4
- ---------------------------------------------------------------
Officers and Trustees 4
The Funds 5
Fund Ownership 6
Trustee Liability 6
INVESTMENT ADVISORY SERVICES 6
- ---------------------------------------------------------------
Adviser to the Fund 6
Advisory Fees 6
ADMINISTRATIVE SERVICES 7
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 7
- ---------------------------------------------------------------
PURCHASING SHARES 7
- ---------------------------------------------------------------
DISTRIBUTION OF FUND SHARES 7
- ---------------------------------------------------------------
Distribution Plan 7
Shareholder Servicing Arrangements 8
DETERMINING NET ASSET VALUE 8
- ---------------------------------------------------------------
Use of the Amortized Cost Method 8
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
YIELD 10
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 10
- ---------------------------------------------------------------
Tax-Equivalency Table 10
EFFECTIVE YIELD 11
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 11
- ---------------------------------------------------------------
APPENDIX 12
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Cash Trust Series II (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
November 14, 1990.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income which is exempt
from federal regular income tax consistent with stability of principal.
This investment objective cannot be changed without approval of shareholders.
The investment policies described below may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests primarily in debt obligations issued by or on behalf of states,
territories and possessions of the United States, including the District of
Columbia, and any political subdivision or financing authority of any of these,
the income from which is, in the opinion of qualified legal counsel, exempt from
federal regular income tax ("Municipal Securities"). The Fund invests primarily
in municipal securities with remaining maturities of thirteen months or less at
the time of purchase by the Fund.
When determining whether a Municipal Security presents minimal credit risks, the
investment adviser considers the creditworthiness of: 1) the issuer of a
Municipal Security, 2) the issuer of a demand feature if the Fund has the
unconditional right to demand payment for the Municipal Securities, or 3) any
guarantor of payment by either of those issuers.
The Fund is not required to sell a municipal security if the security's rating
is reduced below the required minimum subsequent to the Fund's purchase of the
security. The investment adviser considers this event, however, in its
determination of whether the Fund should continue to hold the security in its
portfolio. If ratings made by Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Service, Inc. change because of changes in those
organizations or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies described in the
Fund's prospectus.
MUNICIPAL LEASES
The Fund may purchase Municipal Securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or nonprofit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that
the participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they became
due. In the event of a default or failure of appropriation, unless the
participation interests are credit enhanced, it is unlikely that the
participants would be able to obtain an acceptable substitute source of
payment.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, and not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or expenses, other than normal transaction costs, are incurred. However,
liquid assets of the Fund sufficient to make payment for the securities to be
purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction has
been settled. The Fund may engage in these transactions to an extent that would
cause the segregation of an amount up to 20% of the total value of its assets.
TEMPORARY INVESTMENTS
The Fund may also invest in high quality temporary investments for defensive
purposes and to maintain liquidity.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers,
and other recognized financial institutions sell U.S. government
securities or certificates of deposit to the Fund and agree at the time
of sale
- --------------------------------------------------------------------------------
to repurchase them at a mutually agreed upon time and price. The Fund or
its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market
daily. To the extent that the original seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by the Fund might be delayed pending court action. The Fund
believes that under the regular procedures normally in effect for custody
of the Fund's portfolio securities subject to repurchase agreements, a
court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund may only enter into
repurchase agreements with banks and other recognized financial
institutions such as broker/dealers which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the
Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. This
transaction is similar to borrowing cash. In a reverse repurchase
agreement the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution, broker, or dealer, in
return for a percentage of the instrument's market value in cash, and
agrees that on a stipulated date in the future the Fund will repurchase
the portfolio instrument by remitting the original consideration plus
interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase
agreements does not ensure that the Fund will be able to avoid selling
portfolio instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund,
in a dollar amount sufficient to make payment for the obligations to be
purchased, are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the
transaction is settled.
From time to time, such as when suitable municipal securities are not available,
the Fund may invest a portion of its assets in cash. Any portion of the Fund's
assets maintained in cash will reduce the amount of assets in municipal
securities and thereby reduce the Fund's yield.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one third of the value of its total assets, including the amount
borrowed. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of the value of its total assets are
outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, it may pledge 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 pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or non-publicly issued municipal securities or temporary
investments or enter into repurchase agreements, in accordance with its
investment objective, policies, limitations or Declaration of Trust.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate including limited
partnership interests, although it may invest in municipal securities of
issuers whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
- --------------------------------------------------------------------------------
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in industrial development bonds or other securities, the
interest upon which is paid from revenues of similar types of projects.
However, the Fund may invest as temporary investments 25% or more of the
value of its assets in cash or cash items, securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, such as repurchase
agreements.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for certain restricted securities which meet the criteria
for liquidity as established by the Trustees.
INVESTING IN ANY ONE ISSUER
With respect to securities comprising 75% of its assets, the Fund will
not invest more than 10% of its total assets in the securities of any one
issuer.
Under this limitation, each governmental subdivision, including states
and the District of Columbia, territories, possessions of the United
States, or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds, backed only by the assets and revenues of a
nongovernmental user, are considered to be issued solely by that user. If
in the case of an industrial development bond or governmental-issued
security, a governmental or some other entity guarantees the security,
such guarantee would be considered a separate security issued by the
guarantor as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement more than seven days after notice, and certain restricted
securities not determined by the Trustees to be liquid.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization or other
acquisition.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
industrial development bonds where the principal and interest are the
responsibility of companies (or in the alternative, guarantors, where
applicable) with less than three years of continuous operations,
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases although it may invest in
the securities of issuers which invest in or sponsor such programs.
- --------------------------------------------------------------------------------
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 violation of such
restriction.
The Fund does not expect to borrow money, pledge securities or invest in
restricted securities in excess of 5% of the value of its net assets during the
coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
CASH TRUST SERIES II MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Advisers,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
John F. Donahue*+ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated
Federated Investors Trustee Advisers, Federated Management, and Federated Research; Director, AEtna Life
Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or
Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire
Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice
President and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice President, John R.
Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village
Department Development Corporation; General Partner or Trustee in private real estate
John R. Wood and Associates, ventures in Southwest Florida; Director, Trustee or Managing General Partner
Inc., Realtors of the Funds; formerly, President, Naples Property Management, Inc.
3255 Tamiami Trail, North
Naples, FL
- --------------------------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza- Director, Trustee, or Managing General Partner of the Funds; formerly, Vice
23rd Floor Chairman and Director, PNC Financial Corp and Director, Ryan Homes, Inc.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; President and Trustee, Federated
Federated Investors and Trustee Advisers, Federated Management, and Federated Research; Trustee, Federated
Tower Services Company, President and Trustee, Federated Administrative Services,
Pittsburgh, PA President or Vice President of the Funds; Director, Trustee or Managing
General Partner of some of the Funds. Mr. Donahue is the son of John F.
Donahue, Chairman and Trustee of the Trust.
- --------------------------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue
Concord, MA Cross of Massachusetts, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals, Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee or Managing General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee,
Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon
Financial, F.A., Western Region.
- --------------------------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director,
225 Franklin Street Trustee or Managing General Partner of the Funds; formerly, President, State
Boston, MA Street Bank & Trust Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
- --------------------------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat 'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial,
F.A.
- --------------------------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library
Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management
University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National
Advisory Council for Environmental Policy & Technology.
- --------------------------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Richard B. Fisher President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Director, Federated Securities Corp.; President or Vice President of the
Tower Funds; Director or Trustee of some of the Funds.
Pittsburgh, PA
- --------------------------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors; Vice President
Federated Investors and Treasurer and Treasurer, Federated Advisers, Federated Management, and Federated
Tower Research; Executive Vice President, Treasurer and Director, Federated
Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee or Director of some of the Funds; Vice President and
Treasurer of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel and Trustee, Federated Investors;
Federated Investors and Secretary Vice President, Secretary and Trustee, Federated Advisers, Federated
Tower Management, and Federated Research; Trustee, Federated Services Company;
Pittsburgh, PA Executive Vice President, Secretary and Trustee, Federated Administrative
Services, Director and Executive Vice President, Federated Securities Corp.;
Vice President and Secretary of the Funds.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Fund or the Trust
as defined in the Investment Company Act of 1940.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds", and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport
- --------------------------------------------------------------------------------
Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA
Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master Trust;
Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated
Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed
Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S.
Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment Series
Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty
High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999; Liberty
Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 3, 1994, the following shareholders of record owned 5% or more of the
outstanding shares of the Fund: Administaff Inc., Kingwood, Texas, owned
approximately 9,793,285 shares (8.9%); KAW&Co., Charleston, West Virginia, owned
approximately 12,076,078 shares (11%); and Jerral W. Jones, Irving, Texas, owned
approximately 13,275,706 shares (12%).
TRUSTEE LIABILITY
The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All of the voting securities of Federated Investors are
owned by a trust, the trustees of which are John F. Donahue, his wife, and his
son, J. Christopher Donahue. John F. Donahue, Chairman and Trustee of Federated
Advisers, is Chairman and Trustee of Federated Investors, and Chairman and
Trustee of the Trust. J. Christopher Donahue, President and Trustee of Federated
Advisers, is President and Trustee of Federated Investors, President and Trustee
of Federated Administrative Services, Trustee, Federated Services Company, and
Vice President and Trustee of the Trust. John W. McGonigle, Vice President,
Secretary and Trustee of Federated Advisers, is Trustee, Vice President,
Secretary, and General Counsel of Federated Investors, Executive Vice President,
Secretary, and Trustee of Federated Administrative Services, Director and
Executive Vice President of Federated Securities Corp., Trustee, Federated
Services Company, and Vice President and Secretary of the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus.
For the years ended May 31, 1994, 1993, and 1992, the Fund's adviser earned
$626,848, $599,682, and $322,465, respectively, of which $346,147, $599,389, and
$322,465 were voluntarily waived.
STATE EXPENSE LIMITATION
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
- --------------------------------------------------------------------------------
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes and extraordinary expenses) exceed
2 1/2% per year of the first $30 million of average net assets, 2% per
year of the next $70 million of average net assets, and 1 1/2% per year
of the remaining average net assets, the adviser will reimburse the Fund
for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as, the "Administrators".) For the
fiscal year ended May 31, 1994, the Administrators collectively earned $246,535.
For the fiscal years ended May 31, 1993, and 1992, Federated Administrative
Services, Inc., earned $240,232, and $162,176, respectively. Dr. Henry J.
Gailliot, an officer of Federated Advisers, the adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a director of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc., and Federated
Administrative Services.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales load on days the New
York Stock Exchange is open for business. The procedure for purchasing shares of
the Fund is explained in the prospectus under "Investing in the Fund."
DISTRIBUTION OF FUND SHARES
- --------------------------------------------------------------------------------
DISTRIBUTION PLAN
The Trust has adopted a Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The Plan permits the payment of fees to brokers for distribution
and administrative services and to administrators for administrative services.
- --------------------------------------------------------------------------------
The Plan is designed to (i) stimulate brokers to provide distribution and
administrative support services to the Fund and its shareholders and (ii)
stimulate administrators to render administrative support services to the Fund
and its shareholders. The administrative services are provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals, and include, but are not limited to: communicating account openings;
communicating account closings; entering purchase transactions; entering
redemption transactions; providing or arranging to provide accounting support
for all transactions, wiring funds and receiving funds for Fund share purchases
and redemptions, confirming and reconciling all transactions, reviewing the
activity in Fund accounts, and providing training and supervision of broker
personnel; posting and reinvesting dividends to Fund accounts or arranging for
this service to be performed by the Fund's transfer agent; and maintaining and
distributing current copies of prospectuses and shareholder reports to the
beneficial owners of shares of the Fund and prospective shareholders.
By adopting the Plan, the Board of Trustees expects that the Fund will be able
to achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Fund in seeking to achieve its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, the Fund may be able to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits which the Fund hopes to achieve through the Plan include, but are
not limited to, the following: (1) an efficient and effective administrative
system; (2) a more efficient use of shareholder assets by having them rapidly
invested in the Fund, through an automatic transfer of funds from a demand
deposit account to an investment account, with a minimum of delay and
administrative detail; and (3) an efficient and reliable shareholder records
system and prompt responses to shareholder requests and inquiries concerning
their accounts.
For the years ended May 31, 1994, 1993 and 1992, brokers and administrators
(financial institutions) received fees in the amount of $250,282, $239,445, and
$128,676, respectively pursuant to the distribution plan.
SHAREHOLDER SERVICING ARRANGEMENTS
For the fiscal years ended May 31, 1994, 1993, and 1992, the distributor paid
$185,995, $250,297, and $139,925, respectively, to brokers and administrators
(financial institutions) as an administrative fee.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
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.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Fund's investment objective.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
- --------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risk and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
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 indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
can incur certain transaction costs.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
YIELD
- --------------------------------------------------------------------------------
The Fund calculates its yield daily, based upon the seven days ending on the day
of the calculation, called the "base period." This yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by 365/7.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
The Fund's yield for the seven-day period ended May 31, 1994 was 2.41%.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a 28% tax rate (the maximum effective federal
rate for individuals) and assuming that income is 100% tax-exempt.
The Fund's tax-equivalent yield for the seven-day period ended May 31, 1994 was
3.35%.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the Fund's portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1994
MULTISTATE MUNICIPAL FUND
<TABLE>
<CAPTION>
15.00% 28.00% 31.00%
---------- --------------- -------------
<S> <C> <C> <C>
Joint Return:.................................... $1-38,000 $38,001-91,850 Over $91,851
Single Return:................................... $1-22,750 $22,751-55,100 Over 55,101
</TABLE>
Tax-Exempt Yield Taxable Yield
Equivalent
<TABLE>
<S> <C> <C> <C>
2.50% 2.94% 3.47% 3.62%
3.00 3.53 4.17 4.35
3.50 4.12 4.86 5.07
4.00 4.71 5.56 5.80
4.50 5.29 6.25 6.52
5.00 5.88 6.94 7.25
5.50 6.47 7.64 7.97
6.00 7.06 8.33 8.70
6.50 7.65 9.03 9.42
7.00 8.24 9.72 10.14
7.50 8.82 10.42 10.87
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of the Trust.
* Some portion of the Trust's income may be subject to the federal alternative
minimum tax and state and local taxes.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield is computed by compounding the unannualized base
period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
The Fund's effective yield for the seven-day period ended May 31, 1994 was
2.44%.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in Fund expenses; and
- - the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "short-term
municipal bond funds" category in advertising and sales literature.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION MUNICIPAL BOND RATINGS
<TABLE>
<S> <C>
AAA Debt rated "AAA" has the highest rating assigned by Standard & Poor's Corporation. Capacity
to pay interest and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree.
A Debt rated "A" has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated categories.
NR NR indicates that no public rating has been requested, that there is insufficient information
on which to base a rating, or that S&P does not rate a particular type of obligation as a
matter of policy.
Plus (+) or minus (-): The ratings from AA to "BBB" may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
</TABLE>
MOODY'S INVESTORS SERVICE, INC. MUNICIPAL BOND RATINGS
<TABLE>
<S> <C>
AAA Bonds which are rated AAA are judged to be of the best quality. They carry the smallest
degree of investment risk and are generally referred to as "gilt edged." Interest payments
are protected by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
AA Bonds which are rated AA are judged to be of high quality by all standards. Together with the
AAA group they comprise what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large as in AAA securities or
fluctuation of protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in AAA securities.
A Bonds which are rated A possess many favorable investment attributes and are to be considered
as upper medium grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a susceptibility to impairment
sometime in the future.
BAA Bonds which are rated BAA are considered medium grade obligations, (i.e., they are neither
highly protected nor poorly secured.) Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as well.
NR Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating classification from AA
through BAA in its corporate or municipal bond rating system. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
</TABLE>
STANDARD & POOR'S CORPORATION MUNICIPAL NOTE RATINGS
<TABLE>
<S> <C>
SP-1 Very strong or strong capacity to pay principal and interest. Those issues determined to
possess overwhelming safety characteristics will be given a plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
</TABLE>
MOODY'S INVESTORS SERVICE, INC. SHORT-TERM LOAN RATINGS
<TABLE>
<S> <C>
MIG1/VMIG1 This designation denotes best quality. There is a present strong protection by established
cash flows, superior liquidity support or demonstrated broadbased access to the market for
refinancing.
MIG2/VMIG2 This designation denotes high quality. Margins of protection are ample although not so large
as in the preceding group.
</TABLE>
- --------------------------------------------------------------------------------
FITCH INVESTOR'S SERVICE, INC. SHORT-TERM DEBT RATINGS
<TABLE>
<S> <C>
F-1 VERY STRONG CREDIT QUALITY. Issues assigned this rating reflect an assurance for timely
payment only slightly less in degree than issues rated F-1+.
F-2 GOOD CREDIT QUALITY. Issuers carrying this rating have a satisfactory degree of assurance for
timely payment, but the margin of safety is not as great as the F-1+ and F-1 categories.
</TABLE>
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
<TABLE>
<S> <C>
A-1 This highest category indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are denoted with a
plus (+) sign designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the
relative degree of safety is not as high as for issues designated A-1.
</TABLE>
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
<TABLE>
<S> <C>
PRIME-1 Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for
repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be
evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on debt and ample asset
protection.
- Broad margins in earning coverage of fixed financial charges and high internal cash
generation.
- Well-established access to a range of financial markets and assured sources of alternate
liquidity.
PRIME-2 Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced by many of
the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate liquidity is
maintained.
</TABLE>
0111205B (7/94)
TREASURY CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
PROSPECTUS
Treasury Cash Series II (the "Fund") is a diversified portfolio of Cash Trust
Series II (the "Trust"), an open-end management investment company (a mutual
fund). The investment objective of the Fund is to invest in short-term U.S.
Treasury obligations to provide current income consistent with stability of
principal and liquidity.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
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 BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENT AGENCY.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated July 31,
1994, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of Additional Information
free of charge by calling 1-800-235-4669. To obtain other information or to make
inquiries about the Fund, contact your financial institution.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated July 31, 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 3
When-Issued and Delayed
Delivery Transactions 4
Investment Limitations 4
CASH TRUST SERIES II INFORMATION 4
- ------------------------------------------------------
Management of Cash Trust Series II 4
Board of Trustees 4
Investment Adviser 4
Advisory Fees 4
Adviser's Background 5
Distribution of Fund Shares 5
Distribution Plan 5
Other Payments to
Financial Institutions 6
Administration of the Fund 6
Administrative Services 6
Custodian 6
Transfer Agent and
Dividend Disbursing Agent 7
Legal Counsel 7
Independent Auditors 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN THE FUND 7
- ------------------------------------------------------
Share Purchases 7
Through a Financial Institution 7
Directly from the Distributor 7
Minimum Investment Required 8
What Shares Cost 8
Conversion to Federal Funds 8
Subaccounting Services 8
Systematic Investment Program 8
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
REDEEMING SHARES 9
- ------------------------------------------------------
Through a Financial Institution 9
Receiving Payment 10
By Check 10
By Wire 10
Directly from the Fund 10
By Mail 10
Checkwriting 10
Debit Card 11
Systematic Withdrawal Program 11
Accounts with Low Balances 11
SHAREHOLDER INFORMATION 11
- ------------------------------------------------------
Voting Rights 11
Massachusetts Partnership Law 11
TAX INFORMATION 12
- ------------------------------------------------------
Federal Income Tax 12
State and Local Taxes 12
Pennsylvania Corporate and
Personal Property Taxes 12
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 22
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)..................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................ None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds as applicable)...................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)........... None
Exchange Fee................................................................. None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................................. 0.45%
12b-1 Fee.................................................................... 0.20%
Other Expenses............................................................... 0.24%
Total Fund Operating Expenses(2)........................................ 0.89%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of a
portion of the management fee. The adviser can terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.50%.
(2) The Total Fund Operating Expenses would have been 0.94% absent the voluntary
waiver of a portion of the management fee.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "CASH TRUST SERIES II INFORMATION." WIRE-TRANSFERRED REDEMPTIONS
OF LESS THAN $5,000 MAY BE SUBJECT TO ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years 5 years 10 years
- ---------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return and (2)
redemption at the end of each time period. ............. $9 $28 $49 $110
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
TREASURY CASH SERIES II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Independent Auditors' Report on page 22.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------------------
1994 1993 1992 1991*
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ------------------------------------------------
Net investment income 0.02 0.03 0.04 0.02
- ------------------------------------------------
LESS DISTRIBUTIONS
- ------------------------------------------------
Dividends to shareholders from net
investment income (0.02) (0.03) (0.04) (0.02)
- ------------------------------------------------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00
- ------------------------------------------------ ------ ------ ------ ------
TOTAL RETURN** 2.47% 2.64% 4.41% 2.06%
- ------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ------------------------------------------------
Expenses 0.89% 0.78% 0.73% 0.47%(a)
- ------------------------------------------------
Net investment income 2.42% 2.55% 4.34% 5.71%(a)
- ------------------------------------------------
Expense waiver/reimbursement (b) 0.05% 0.19% 0.57% 0.37%(a)
- ------------------------------------------------
SUPPLEMENTAL DATA
- ------------------------------------------------
Net assets, end of period (000 omitted) $229,882 $310,648 $104,371 $70,798
- ------------------------------------------------
</TABLE>
* Reflects operations for the period from February 9, 1991 (date of initial
public investment), to May 31, 1991.
** Based on net asset value, which does not reflect the sales load or contingent
deferred sales charges, if applicable.
(a) Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated November 14, 1990. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. This prospectus relates only to the Trust's
short-term U.S. Treasury obligations portfolio, known as Treasury Cash Series
II. The Fund is designed for customers of financial institutions such as banks,
fiduciaries, custodians of public funds, investment advisers and broker/dealers,
as a convenient means of accumulating an interest in a professionally managed,
diversified portfolio limited to money market instruments maturing in thirteen
months or less. A minimum initial investment of $25,000 is required, except for
qualified retirement plans which have a minimum initial investment of $1,000.
Subsequent investments must be in amounts of at least $500.
The Fund attempts to stabilize the value of a share at $1.00. Fund shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income consistent
with stability of principal and liquidity. The investment objective cannot be
changed without approval of shareholders. While there is no assurance that the
Fund will achieve its investment objective, it endeavors to do so by following
the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing its assets in U.S.
Treasury obligations which are issued by the U.S. government, and are fully
guaranteed as to payment of principal and interest by the United States. From
time to time, the Fund's assets may be substantially invested in U.S. Treasury
obligations which are the subject of repurchase agreements (see "Repurchase
Agreements," below). Unless indicated otherwise, the investment policies of the
Fund may be changed by the Trustees without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. The Fund invests only in U.S. Treasury obligations
maturing in thirteen months or less and in repurchase agreements fully
collateralized by U.S. Treasury obligations. The average maturity of the U.S.
Treasury obligations in the Fund's portfolio, computed on a dollar-weighted
basis, will be 90 days or less.
REPURCHASE AGREEMENTS. Certain securities in which the Fund may invest may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. Treasury obligations to the Fund and agree at the time of
sale to repurchase them at a mutually agreed upon time and price. To the extent
that the original seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase U.S.
Treasury obligations on a when-issued or delayed delivery basis. In when-issued
and delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following limitation, however, can be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
- invest more than 10% of its net assets in illiquid securities, including
repurchase agreements providing for settlement in more than seven days
after notice.
CASH TRUST SERIES II INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF CASH TRUST SERIES II
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the business affairs of the Trust and for exercising
all of the powers of the Trust except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Federated Advisers, the Fund's
investment adviser, subject to direction by the Trustees. The adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund.
ADVISORY FEES. The Fund's adviser receives an annual investment advisory
fee equal to .50 of 1% of the Fund's average daily net assets. The adviser
may voluntarily choose to waive a portion of its fee or reimburse the Fund
for certain operating expenses. The adviser can terminate this voluntary
waiver of its advisory fee at any time and at its sole discretion. This
does not include reimbursement to the Fund of any expenses incurred by
shareholders who use the transfer agent's subaccounting facilities. The
adviser has also undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. Federated Advisers, a Delaware business trust
organized on April 11, 1989, is a registered investment adviser under the
Investment Advisers Act of 1940. It is a subsidiary of Federated Investors.
All of the Class A (voting) shares of Federated Investors are owned by a
trust, the trustees of which are John F. Donahue, Chairman and Trustee of
Federated Investors, Mr. Donahue's wife, and Mr. Donahue's son, J.
Christopher Donahue, who is President and Trustee of Federated Investors.
Susan M. Nason has been the Fund's portfolio manager since February, 1991.
Ms. Nason joined Federated Investors in 1987 and has been a Vice President
of the Fund's investment adviser since 1993. Ms. Nason served as an
Assistant Vice President of the investment adviser from 1990 until 1992,
and from 1987 until 1990 she acted as an investment analyst. Ms. Nason is a
Chartered Financial Analyst and received her M.B.A. in Finance from
Carnegie Mellon University.
Federated Advisers and other subsidiaries of Federated Investors serve as
investment advisers to a number of investment companies and private
accounts. Certain other subsidiaries also provide administrative services
to a number of investment companies. Total assets under management or
administration by these and other subsidiaries of Federated Investors are
approximately $70 billion. Federated Investors, which was founded in 1956
as Federated Investors, Inc., develops and manages mutual funds primarily
for the financial industry. Federated Investors' track record of
competitive performance and its disciplined risk averse investment
philosophy serve approximately 3,500 client institutions nationwide.
Through these same client institutions, individual shareholders also have
access to this same level of investment expertise.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. According to the provisions of a distribution plan adopted
pursuant to Investment Company Act Rule 12b-1, the distributor may select
financial institutions such as banks, fiduciaries, custodians for public funds,
investment advisers and brokers/dealers to provide distribution and/or
administrative services as agents for their clients or customers. Administrative
services may include, but are not limited to the following functions: providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase and
redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries regarding the Fund; assisting
clients in changing dividend options; account designations, and addresses; and
providing such other services as the Fund reasonably requests.
The distributor will pay financial institutions a fee based upon shares of the
Fund owned by their clients or customers. The schedules of such fees and the
basis upon which such fees will be paid will be determined from time to time by
the Board of Trustees of the Trust, provided that for any period the total
amount of fees representing an expense to the Trust shall not exceed an annual
rate of .20 of 1% of the average net asset value of shares of the Fund held
during the period by clients or customers of financial institutions. The current
annual rate of such fees is .20 of 1%. Any fees paid by the distributor
with respect to shares of the Fund pursuant to the distribution plan will be
reimbursed by the Trust from the assets of the Fund in accordance with the
previously agreed schedule of fees.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Board of Trustees will consider appropriate changes in the administrative
services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as brokers or dealers pursuant to state law.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution Plan, certain financial
institutions may be compensated by the adviser or its affiliates for the
continuing investment of customers' assets in certain funds, including the Fund,
advised by those entities. These payments will be made directly by the
distributor or adviser from their assets, and will not be made from the assets
of the Fund or by the assessment of a sales load on shares.
Furthermore, the distributor may offer to pay a fee from its own assets to
financial institutions as financial assistance for providing substantial
marketing and sales support. The support may include sponsoring sales,
educational and training seminars for their employees, providing sales
literature, and engineering computer software programs that emphasize the
attributes of the Fund. Such assistance will be predicated upon the amount of
shares the financial institution sells or may sell, and/or upon the type and
nature of sales or marketing support furnished by the financial institution. Any
payments made by the distributor may be reimbursed by the Fund's investment
adviser or its affiliates.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting services) necessary to operate the Trust.
Federated Administrative Services, provides these at an annual rate which
relates to the average aggregate daily net assets of the Federated Funds as
specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE DAILY NET ASSETS
MAXIMUM ADMINISTRATIVE FEE OF THE FEDERATED FUNDS
- ------------------------------ ------------------------------------
<C> <S>
0.15 of 1% on the first $250 million
0.125 of 1% on the next $250 million
0.10 of 1% on the next $250 million
0.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Administrative Services may choose voluntarily to waive a portion of
its fee.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, and
dividend disbursing agent for the Fund.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, and Dickstein, Shapiro & Morin, L.L.P., Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Deloitte &
Touche, Boston, Massachusetts.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange is open for
business. Shares of the Fund may be purchased through a financial institution
which has a sales agreement with the distributor or directly from the
distributor, Federated Securities Corp. The Fund reserves the right to reject
any purchase request.
THROUGH A FINANCIAL INSTITUTION. An investor may call his financial institution
(such as a bank or an investment dealer) to place an order to purchase shares of
the Fund. Orders through a financial institution are considered received when
the Fund receives payment by wire or converts payment by check from the
financial institution into federal funds. It is the financial institution's
responsibility to transmit orders promptly.
DIRECTLY FROM THE DISTRIBUTOR. An investor may place an order to purchase shares
directly from the distributor. To do so: complete and sign the new account form
available from the Fund; enclose a check made payable to Treasury Cash Series
II; and mail both to Treasury Cash Series II, P.O. Box 8604, Boston, MA
02266-8604.
The order is considered received after the check is converted by the transfer
agent's bank, State Street Bank and Trust Company ("State Street Bank"), into
federal funds. This is generally the next business day after State Street Bank
receives the check.
To purchase shares of the Fund by wire, call the Fund. All information needed
will be taken over the telephone, and the order is considered received when
State Street Bank receives payment by wire. Federal funds should be wired as
follows: Federated Services Company, c/o State Street Bank and Trust Company,
Boston, Massachusetts 02266-8604; Attention: EDGEWIRE; For Credit to: Treasury
Cash Series II; Fund Number (this number can be found on the account statement
or by contacting the
Fund); Group Number or Order Number; Nominee or Institution Name; ABA 011000028.
Shares cannot be purchased by wire on Columbus Day, Veterans' Day, or Martin
Luther King Day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $25,000, unless the investment is
in a retirement plan, in which case the minimum initial investment is $1,000.
Subsequent investments must be in amounts of at least $500. An institutional
investor's minimum investment will be calculated by averaging all accounts it
maintains with the Fund.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. There is no sales load imposed by the Fund.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m.
(Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on:
(i) days on which there are not sufficient changes in the value of the Fund's
portfolio securities that its net asset value might be materially affected; (ii)
days during which no shares are tendered for redemption and no orders to
purchase shares are received; or (iii) the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. State Street Bank acts as the
shareholder's agent in depositing checks and converting them to federal funds.
SUBACCOUNTING SERVICES
Financial institutions are encouraged to open single master accounts. However,
certain financial institutions may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent reserves the right to charge a fee based on the level of
subaccounting services rendered. Financial institutions holding Fund 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 provided which may be related
to the ownership of Fund shares. This prospectus should, therefore, be read
together with any agreement between the customer and the financial institution
with regard to the services provided, the fees charged for those services, and
any restrictions and limitations imposed.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in a minimum amount of $500. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through his financial institution.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Shares purchased by wire before
3:00 p.m. (Eastern time) begin earning dividends that day. Shares purchased by
check begin earning dividends on the next business day after the check is
converted by the transfer agent into federal funds. Unless shareholders request
cash payments on an application or by writing to Federated Securities Corp.
dividends are automatically reinvested on payment dates in additional shares of
the Fund.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Fund
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemptions can be made through a financial
institution or directly from the Fund. Redemption requests must be received in
proper form.
THROUGH A FINANCIAL INSTITUTION
A shareholder may redeem shares of the Fund by calling his financial institution
(such as a bank or an investment dealer) to request the redemption. Shares will
be redeemed at the net asset value next determined after the Fund receives the
redemption request from the financial institution. The financial institution is
responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the Fund. The financial institution may
charge customary fees and commissions for this service. If at any time the Fund
shall determine it necessary to terminate or modify this method of redemption,
shareholders will be promptly notified.
Before a financial institution may request redemption by telephone on behalf of
a shareholder an authorization form permitting the Fund to accept the redemption
request must first be completed. Telephone redemption instructions may be
recorded. In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption, such as "By Mail", should be considered.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
RECEIVING PAYMENT. Pursuant to instructions from the financial institution,
redemptions will be made by check or by wire.
BY CHECK. Normally a check for the proceeds is mailed within one business
day, but in no event more than seven days, after receipt of a proper
redemption request. Dividends are paid up to and including the day that a
redemption request is processed.
BY WIRE. Proceeds for redemption requests received before 12:00 noon
(Eastern time) will be wired the same day but will not be entitled to that
day's dividend. Redemption requests received after 12:00 noon (Eastern
time) will receive that day's dividends and will be wired the following
business day.
DIRECTLY FROM THE FUND
BY MAIL. Any shareholder may redeem Fund shares by sending a written request to
Federated Services Company. The written request should include the shareholder's
name, the Fund name, the account number, and the share or dollar amount
requested. If share certificates have been issued, they must be properly
endorsed and should be sent by registered or certified mail with the written
request. Shareholders should contact the Fund for assistance in redeeming by
mail.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request. Dividends are paid up to and including the day that a redemption
request is processed.
Individual shareholders requesting a redemption of $50,000 or more, a redemption
of any amount to be sent to an address other than that on record with the Fund,
or a redemption payable other than to the shareholder of record must have
signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund ("BIF"), which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
- a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges;
- a savings bank or savings and loan association whose deposits are insured
by the Saving Association Insurance Fund ("SAIF"), which is administered
by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Trust and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Trust may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Trust and its transfer agent reserve the right
to amend these standards at any time without notice.
CHECKWRITING. At the shareholder's request, Federated Services Company will
establish a checking account for redeeming Fund shares. A fee is charged for
this service. With a Fund checking account, shares may be redeemed simply by
writing a check. The redemption will be made at the net asset value on the date
that Federated Services Company presents the check to the Fund. A check may not
be written to close an account. If a shareholder wishes to redeem shares and
have the proceeds available, a check may be written and negotiated through the
shareholder's bank. Checks should never be sent to
the transfer agent to redeem shares. Cancelled checks are sent to the
shareholder each month. For further information, contact the Fund.
DEBIT CARD. At the shareholder's request, a debit card is available. A fee may
be charged for this service. For further information, contact Federated
Securities Corp.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $25,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank, savings
bank, or credit union that is an Automated Clearing House ("ACH") member.
Depending upon the amount of the withdrawal payments and the amount of dividends
paid with respect to Fund shares, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. A shareholder may apply for participation
in this program through his financial institution.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except retirement plans, and pay the proceeds to
the shareholder if the account balance falls below a required minimum value of
$25,000 due to shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER 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 each fund in the
Trust have equal voting rights except that only shares of the Fund are entitled
to vote on matters affecting only the Fund. As a Massachusetts business trust,
the Trust is not required to hold annual shareholder meetings. Shareholder
approval will be sought only for certain changes in the Trust's or the Fund's
operation and for the election of Trustees under certain circumstances. As of
July 3, 1994, The Bank of Guam, Agana, Guam, owned approximately 75,916,874
shares (32%) of the Fund, and therefore, may, for certain purposes, be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
outstanding shares of the Trust.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal
documents with Massachusetts that expressly disclaim the liability of
shareholders for such acts or obligations of the Trust. These documents require
notice of this disclaimer to be given in each agreement, obligation, or
instrument that the Trust or its Trustees enter into or sign.
In the unlikely event a shareholder is held personally liable for obligations of
the Trust, the Trust is required to use its property to protect or compensate
the shareholder. On request, the Trust will defend any claim made and pay any
judgment against a shareholder for any act or obligation of the Trust.
Therefore, financial loss resulting from liability as a shareholder will occur
only if the Trust cannot meet its obligations to indemnify shareholders and pay
judgments against them from its assets.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
other portfolios of the Trust will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares.
STATE AND LOCAL TAXES
The Fund intends to limit its investments to U.S. Treasury obligations paying
interest which, if owned directly by shareholders of the Fund, would be exempt
from state and personal income tax. However, under the laws of some states, the
net investment income distributed by the Fund may be taxable to shareholders.
State laws differ on this issue, and shareholders are urged to consult their own
tax advisers regarding the status of their accounts under state and local tax
laws.
PENNSYLVANIA CORPORATE AND PERSONAL PROPERTY TAXES. In the opinion of Houston,
Houston & Donnelly, counsel to the Fund:
- the Fund is not subject to Pennsylvania corporate or personal property
taxes; and
- Fund shares may be subject to personal property taxes imposed by
counties, municipalities, and school districts in Pennsylvania to the
extent that the portfolio securities in the Fund would be subject to such
taxes if owned directly by residents of those jurisdictions.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield and effective yield.
The yield of the Fund represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time the Fund may advertise its performance using certain financial
publications and/or compare its performance to certain indices.
TREASURY CASH SERIES II
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM U.S. TREASURY OBLIGATIONS--22.4%
- ----------------------------------------------------------------------------------
* U.S. TREASURY BILLS--7.7%
----------------------------------------------------------------
$18,000,000 3.135%-4.815%, 7/28/94-5/4/95 $ 17,677,302
----------------------------------------------------------------
U.S. TREASURY NOTES--14.7%
----------------------------------------------------------------
33,500,000 4.25%-8.00%, 7/15/94-2/15/95 33,704,881
---------------------------------------------------------------- ------------
TOTAL SHORT-TERM U.S. TREASURY OBLIGATIONS 51,382,183
---------------------------------------------------------------- ------------
REPURCHASE AGREEMENTS(A)--77.3%
- ----------------------------------------------------------------------------------
13,800,000 BZW Securities, Inc., 4.30%, dated 5/31/94, due 6/1/94 13,800,000
----------------------------------------------------------------
10,000,000 BT Securities, Inc., 4.30%, dated 5/31/94, due 6/1/94 10,000,000
----------------------------------------------------------------
</TABLE>
<TABLE>
<C> <C> <S> <C>
10,000,000 Carroll McEntee & McGinley, Inc., 4.30%, dated 5/31/94, due
6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Daiwa Securities America, Inc., 4.25%, dated 5/31/94, due 6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Dean Witter Reynolds, Inc., 4.30%, dated 5/31/94, due 6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Deutsche Bank Capital Corp., 4.30%, dated 5/31/94, due 6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Donaldson, Lufkin & Jenrette Securities Corp., 4.25%,
dated 5/31/94, due 6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Harris Trust & Savings Bank, 4.30%, dated 5/31/94, due 6/1/94 10,000,000
----------------------------------------------------------------
5,000,000 J.P. Morgan Securities, Inc., 4.27%, dated 5/31/94, due 6/1/94 5,000,000
----------------------------------------------------------------
10,000,000 Kidder Peabody & Co., Inc. 4.25%-4.28%, dated 5/31/94, due
6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Nations Bank Corp., 4.24%, dated 5/31/94, due 6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Nikko Securities Co., International, Inc., 4.25%, dated 5/31/94,
due 6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Nomura Securities International, Inc., 4.25%, dated 5/31/94,
due 6/1/94 10,000,000
----------------------------------------------------------------
10,000,000 Smith Barney, Harris Upham & Co., Inc., 4.35%, dated 5/31/94,
due 6/1/94 10,000,000
----------------------------------------------------------------
30,000,000 UBS Securities, Inc., 4.30%, dated 5/31/94, due 6/1/94 30,000,000
----------------------------------------------------------------
</TABLE>
TREASURY CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
REPURCHASE AGREEMENTS(A)--(CONTINUED)
- ----------------------------------------------------------------------------------
$ 5,000,000 ** Merrill Lynch Government Securities, Inc., 4.25%, dated 5/6/94,
due 8/4/94 $ 5,000,000
----------------------------------------------------------------
4,000,000 ** UBS Securities, Inc., 4.30%, dated 5/19/94, due 6/9/94 4,000,000
---------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 177,800,000
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST (NOTE 2A) $229,182,183+
---------------------------------------------------------------- ------------
</TABLE>
+ Also represents cost for federal tax purposes.
(a) Repurchase Agreements are fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio. The investments in
repurchase agreements are through participation in joint accounts with other
Federated funds.
* Each issue shows rate of discount at time of purchase.
** Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement within seven days if the creditworthiness of the issuer is
downgraded.
Note: The categories of investments are shown as a percentage of net assets
($229,882,352) at May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements $177,800,000
- -----------------------------------------------------------------
Investments in other securities 51,382,183
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value (Notes 2A and 2B) $229,182,183
- --------------------------------------------------------------------------------
Cash 286,908
- --------------------------------------------------------------------------------
Interest receivable 633,409
- --------------------------------------------------------------------------------
Deferred expenses (Note 2F) 50,486
- -------------------------------------------------------------------------------- ------------
Total assets 230,152,986
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Dividends payable 173,375
- -----------------------------------------------------------------
Payable to distributor (Note 4) 45,108
- -----------------------------------------------------------------
Accrued expenses 52,151
- ----------------------------------------------------------------- ------------
Total liabilities 270,634
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 229,882,352 shares of beneficial interest outstanding $229,882,352
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share
($229,882,352 / 229,882,352 shares of beneficial interest outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
STATEMENT OF OPERATIONS
YEAR ENDED MAY 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- ------------------------------------------------------------------------------------
Interest income (Note 2C) $8,066,431
- ------------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------
Investment advisory fee (Note 4) $1,217,479
- ----------------------------------------------------------------------
Distribution fees (Note 4) 485,826
- ----------------------------------------------------------------------
Trustees' fees 3,914
- ----------------------------------------------------------------------
Administrative personnel and services fees (Note 4) 310,344
- ----------------------------------------------------------------------
Custodian and portfolio accounting fees 133,202
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses (Note 4) 16,548
- ----------------------------------------------------------------------
Fund share registration costs 69,297
- ----------------------------------------------------------------------
Auditing fees 14,614
- ----------------------------------------------------------------------
Legal fees 9,525
- ----------------------------------------------------------------------
Printing and postage 6,816
- ----------------------------------------------------------------------
Taxes 359
- ----------------------------------------------------------------------
Insurance premiums 9,817
- ----------------------------------------------------------------------
Miscellaneous 8,857
- ---------------------------------------------------------------------- ----------
Total expenses 2,286,598
- ----------------------------------------------------------------------
Deduct--Waiver of investment advisory fee (Note 4) 122,580
- ---------------------------------------------------------------------- ----------
Net expenses 2,164,018
- ------------------------------------------------------------------------------------ ----------
Net investment income $5,902,413
- ------------------------------------------------------------------------------------ ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------
1994 1993
------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 5,902,413 $ 6,509,114
- -------------------------------------------------------------- ------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- --------------------------------------------------------------
Dividends to shareholders from net investment income (5,902,413) (6,509,114)
- -------------------------------------------------------------- ------------- --------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- --------------------------------------------------------------
Proceeds from sale of shares 658,832,271 1,179,058,540
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 4,890,179 5,132,853
- --------------------------------------------------------------
Cost of shares redeemed (744,488,408) (977,913,742)
- -------------------------------------------------------------- ------------- --------------
Change in net assets from Fund share transactions (80,765,958) 206,277,651
- -------------------------------------------------------------- ------------- --------------
Change in net assets (80,765,958) 206,277,651
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 310,648,310 104,370,659
- -------------------------------------------------------------- ------------- --------------
End of period $ 229,882,352 $ 310,648,310
- -------------------------------------------------------------- ------------- --------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1994
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Cash Trust Series II (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Trust
consists of two portfolios, one diversified and one non-diversified. The
financial statements included herein present only those of the diversified
portfolio, Treasury Cash Series II (the "Fund"). The financial statements of the
other portfolio 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.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
<TABLE>
<S> <C>
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio
securities is in accordance with Rule 2a-7 under the Investment Company Act of 1940.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry System, or to
have segregated within the custodian bank's vault, all securities held as collateral in
support of repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor, on a daily basis, the market value of each repurchase
agreement's underlying collateral to ensure the value at least equals the principal
amount of the repurchase agreement, including accrued interest.
The Fund will only enter into repurchase agreements with banks and other recognized
financial institutions such as broker/dealers, which are deemed by the Fund adviser to be
creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount are amortized as required by the Internal Revenue Code,
as amended ("Code"). Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code
applicable to regulated investment companies and to distribute to shareholders each year
substantially all of its taxable income. Accordingly, no provisions for federal tax are
necessary.
E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or
delayed delivery transactions. The Fund records when-issued securities on the trade date
and maintains security positions such that sufficient liquid assets will be available to
make payment for
</TABLE>
TREASURY CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its
shares in its first fiscal year, excluding the initial expense of registering the shares,
have been deferred and are being amortized using the straight-line method over a period
of five years from the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
</TABLE>
(3) 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 May
31, 1994, capital paid-in aggregated $229,882,352. Transactions in Fund shares
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1994 1993
- -------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 658,832,271 1,179,058,540
- --------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 4,890,179 5,132,853
- --------------------------------------------------------------
Shares redeemed (744,488,408) (977,913,742)
- -------------------------------------------------------------- ------------ ------------
Net change resulting from fund share transactions (80,765,958) 206,277,651
- -------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser
("Adviser"), receives for its services an annual investment advisory fee equal
to 0.50 of 1% of the Fund's average daily net assets. Adviser may voluntarily
choose to waive a portion of its fee. Adviser can modify or terminate this
voluntary waiver, at any time at its sole discretion
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with administrative personnel and services. Prior to March 1, 1994, these
services were provided at approximate cost. Effective March 1, 1994, the fee is
based on the level of average aggregate daily net assets of all funds advised by
subsidiaries of Federated Investors for the period . The administrative fee
received during any fiscal year shall be at least $125,000 per portfolio and
$30,000 per each additional class of shares.
DISTRIBUTION FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Investment Company Act of 1940. Under the terms of the
Plan the Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended to
result in the sale of the Fund's shares. The Plan provides that the Fund may
incur distribution expenses up to 0.20 of 1% of the average daily net assets of
the shares, annually, to reimburse the distributor.
TREASURY CASH SERIES II
- --------------------------------------------------------------------------------
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The fee
is based on the size, type and number of accounts and transactions made by
shareholders.
ORGANIZATIONAL EXPENSES--Organizational expenses ($20,484) and start-up
administrative service expenses ($53,519) were borne initially by FAS. The Fund
has agreed to reimburse FAS at an annual rate of .005 of 1% of average daily net
assets and .01 of 1% of average daily net assets for organizational and start-up
administrative expenses, respectively, until expenses initially borne by FAS are
fully reimbursed or the expiration of five years after January 25, 1991, the
date the Fund's portfolio first became effective, whichever occurs earlier. For
the year ended May 31, 1994, the Fund paid $4,228 and $21,006 respectively,
pursuant to this agreement. Organizational expenses and start-up administrative
service expenses have been fully reimbursed by the Fund as of May 31, 1994.
Certain of the Officers and Directors of the Fund are Officers and Directors or
Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Board of Trustees of
CASH TRUST SERIES II and Shareholders of TREASURY CASH SERIES II:
We have audited the accompanying statement of assets and liabilities of Treasury
Cash Series II (one of the portfolios comprising Cash Trust Series II),
including the portfolio of investments, as of May 31, 1994, the related
statement of operations for the year then ended, the statement of changes in net
assets for the years ended May 31, 1994 and 1993, and the financial highlights
(see page 2 of the Prospectus) for each of the years in the four-year period
ended May 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of the securities owned as of
May 31, 1994 by correspondence with the custodian. 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 Treasury Cash Series
II as of May 31, 1994, 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
Boston, Massachusetts
July 8, 1994
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ADDRESSES
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<TABLE>
<S> <C> <C>
Fund
Treasury Cash Series II Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Federated Advisers Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Custodian
State Street Bank and P.O. Box 8604
Trust Company Boston, Massachusetts 02266-8604
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Transfer Agent and Dividend Disbursing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
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Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
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Independent Auditors
Deloitte & Touche 125 Summer Street
Boston, Massachusetts 02110-1617
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</TABLE>
TREASURY CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
PROSPECTUS
A Diversified Portfolio of
Cash Trust Series II, An Open-End
Management Investment Company
July 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
147552301
0111203A (7/94)
TREASURY CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus of
Treasury Cash Series II (the "Fund")
dated July 31, 1994. This Statement is not a prospectus itself. To receive a
copy of the prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated July 31, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE FUND 1
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INVESTMENT OBJECTIVE AND POLICIES 1
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Types of Investments 1
Repurchase Agreements 1
When-Issued and Delayed
Delivery Transactions 1
Reverse Repurchase Agreements 1
Investment Limitations 1
CASH TRUST SERIES II MANAGEMENT 2
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Officers and Trustees 2
The Funds 4
Fund Ownership 4
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 5
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Adviser to the Fund 5
Advisory Fees 5
ADMINISTRATIVE SERVICES 5
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BROKERAGE TRANSACTIONS 5
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PURCHASING SHARES 6
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DISTRIBUTION OF FUND SHARES 6
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Distribution Plan 6
Shareholder Servicing Arrangements 7
DETERMINING NET ASSET VALUE 7
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Use of the Amortized Cost Method 7
REDEEMING SHARES 8
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Redemption in Kind 8
TAX STATUS 8
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The Fund's Tax Status 8
Shareholders' Tax Status 8
YIELD 8
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EFFECTIVE YIELD 9
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PERFORMANCE COMPARISONS 9
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GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Cash Trust Series II (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust dated
November 14, 1990.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without approval of shareholders. The investment policies described below may be
changed by the Trustees without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
TYPES OF INVESTMENTS
The Fund invests only in short-term U.S. Treasury obligations and in repurchase
agreements fully collateralized by U.S. Treasury obligations. The Fund may also
retain Fund assets in cash.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market. In the
event that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending court
action. The Fund believes that under the regular procedures normally in effect
for custody of the Fund's portfolio securities subject to repurchase agreements,
a court of competent jurisdiction would rule in favor of the Fund and allow
retention or disposition of such securities. The Fund will only enter into
repurchase agreements with banks and other recognized financial institutions,
such as broker/dealers which are deemed by the Fund's adviser to be creditworthy
pursuant to guidelines established by the Trustees.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to deliver the securities may cause the Fund to miss a price or
yield considered to be advantageous.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated on the Fund's records at the trade date. These
securities are marked to market daily and maintained until the transaction is
settled. The Fund may engage in these transactions to an extent that would cause
the segregation of an amount up to 20% of the total value of its assets.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated on the Fund's records at the trade date. These securities are
marked to market daily and maintained until the transaction is settled.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as are necessary for
clearance of transactions.
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
10% of the value of total assets of the Fund at the time of the
borrowing.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may purchase or
hold U.S. Treasury obligations, including repurchase agreements,
permitted by its investment objective, policies, and limitations or its
Declaration of Trust.
INVESTING IN RESTRICTED SECURITIES
The Fund will not purchase or sell securities which are restricted as to
resale under federal securities law.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities including repurchase agreements providing for
settlement in more than seven days after notice.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will not purchase securities of other investment companies
except as part of a merger, consolidation, reorganization, or other
acquisition.
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 does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during the coming fiscal year.
CASH TRUST SERIES II MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Federated Advisers,
Federated Investors, Federated Securities Corp., Federated Services Company,
Federated Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
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John F. Donahue*+ Chairman Chairman and Trustee, Federated Investors; Chairman and
Federated Investors and Trustee Trustee, Federated Advisers, Federated Management, and
Tower Federated Research; Director, AEtna Life and Casualty
Pittsburgh, PA Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds; formerly, Director,
The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President and
Trustee of the Trust.
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</TABLE>
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<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
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John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-
Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors;
Department President, Northgate Village Development Corporation;
John R. Wood and General Partner or Trustee in private real estate ventures
Associates, Inc., in Southwest Florida; Director, Trustee, or Managing
Realtors General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail, North Property Management, Inc.
Naples, FL
- ---------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee, Michael
One PNC Plaza- Baker, Inc.; Director, Trustee, or Managing General Partner
23rd Floor of the Funds; formerly, Vice Chairman and Director, PNC
Pittsburgh, PA Financial Corp and Director, Ryan Homes, Inc.
- ---------------------------------------------------------------------------------------------------------------
J. Christopher Donahue* Vice President President and Trustee, Federated Investors; President and
Federated Investors and Trustee Trustee, Federated Advisers, Federated Management, and
Tower Federated Research; Trustee, Federated Services Company;
Pittsburgh, PA President and Trustee, Federated Administrative Services;
President or Vice President of the Funds; Director, Trustee
or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Chairman and Trustee
of the Trust.
- ---------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.;
571 Hayward Mill Road Director, Trustee, or Managing General Partner of the
Concord, MA Funds; formerly, Director, Blue Cross of Massachusetts,
Inc.
- ---------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and
3471 Fifth Avenue Mon-
Suite 1111 tefiore Hospitals; Clinical Professor of Medicine and
Pittsburgh, PA Trustee,
University of Pittsburgh; Director, Trustee, or Managing
General
Partner of the Funds.
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Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director,
5916 Penn Mall Eat'N Park Restaurants, Inc., and Statewide Settlement
Pittsburgh, PA Agency, Inc.; Director, Trustee, or Managing General
Partner of the Funds; formerly, Counsel, Horizon Financial,
F.A., Western Region.
- ---------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachu-
225 Franklin Street setts; Director, Trustee, or Managing General Partner of
Boston, MA the Funds; formerly, President, State Street Bank & Trust
Company and State Street Boston Corporation and Trustee,
Lahey Clinic Foundation, Inc.
- ---------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman,
5916 Penn Mall Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.;
Pittsburgh, PA Director, Trustee, or Managing General Partner of the
Funds; formerly, Vice Chairman, Horizon Financial, F.A.
- ---------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant;
1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND
Learning Corporation, Online Computer Library Center, Inc., and U.S.
University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management
Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of
the Funds; President Emeritus, University of Pittsburgh,
formerly, Chairman, National Advisory Council for
Environmental Policy & Technology.
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</TABLE>
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<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee,
4905 Bayard Street or Managing General Partner of the Funds.
Pittsburgh, PA
- ---------------------------------------------------------------------------------------------------------------
Richard B. Fisher President Executive Vice President and Trustee, Federated Investors;
Federated Investors Chairman and Director, Federated Securities Corp.;
Tower President or Vice President of the Funds; Director or
Pittsburgh, PA Trustee of some
of the Funds.
- ---------------------------------------------------------------------------------------------------------------
Edward C. Gonzales Vice President Vice President, Treasurer and Trustee, Federated Investors;
Federated Investors and Treasurer Vice President and Treasurer, Federated Advisers, Federated
Tower Manage-
Pittsburgh, PA ment, and Federated Research; Executive Vice President,
Trea-
surer, and Director, Federated Securities Corp.; Chairman,
Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President
and Treasurer of the Funds.
- ---------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee,
Federated Investors and Secretary Feder-
Tower ated Investors; Vice President, Secretary, and Trustee,
Pittsburgh, PA Federated
Advisers, Federated Management, and Federated Research;
Trustee, Federated Services Company; Executive Vice
President, Secretary, and Trustee, Federated Administrative
Services; Executive Vice President and Director, Federated
Securities Corp.; Vice President and Secretary of the
Funds.
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</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Members of Executive Committee. The Executive Committee of the Board of
Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds," and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of July 3, 1994, the following shareholders of record owned 5% or more of the
outstanding shares of the Fund:
Marine Bank of Springfield, Springfield, Illinois, owned approximately
31,853,506 shares (13%).
- --------------------------------------------------------------------------------
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Federated Advisers. It is a subsidiary of
Federated Investors. All the voting securities of Federated Investors are owned
by a trust, the trustees of which are John F. Donahue, his wife, and
his son, J. Christopher Donahue. John F. Donahue, Chairman and Trustee of
Federated Advisers, is Chairman and
Trustee of Federated Investors, and Chairman and Trustee of the Trust. J.
Christopher Donahue, President and Trustee of Federated Advisers, is President
and Trustee of Federated Investors, President and Trustee of Federated
Administrative Services, Trustee, Federated Services Company, and Vice President
and Trustee of the Trust. John W. McGonigle, Vice President, Secretary, and
Trustee of Federated Advisers, is Trustee, Vice President, Secretary, and
General Counsel of Federated Investors, Executive Vice President, Secretary, and
Trustee of Federated Administrative Services, Executive Vice President and
Director of Federated Securities Corp., Trustee, Federated Services Company, and
Vice President and Secretary of the Trust.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, Federated Advisers receives an annual investment
advisory fee as described in the prospectus.
For the years ended May 31, 1994, 1993, and 1992 the Fund's adviser earned
$1,217,479, $1,278,111, and $457,832, respectively, of which $122,580, $497,407,
and $457,832, respectively, were voluntarily waived.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1 1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited in any single fiscal year by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus. Prior to March 1, 1994, Federated Administrative Services, Inc.,
also a subsidiary of Federated Investors, served as the Fund's administrator.
(For purposes of this Statement of Additional Information, Federated
Administrative Services and Federated Administrative Services, Inc., may
hereinafter collectively be referred to as, the "Administrators".) For the
fiscal year ended May 31, 1994, the Administrators collectively earned $310,344.
For the fiscal years ended May 31, 1993, and 1992, Federated Administrative
Services, Inc., earned $333,357, and $225,319, respectively. Dr. Henry J.
Gailliot, an officer of Federated Advisers, the adviser to the Fund, holds
approximately 20% of the outstanding common stock and serves as a director of
Commercial Data Services, Inc., a company which provides computer processing
services to Federated Administrative Services, Inc., and Federated
Administrative Services.
- --------------------------------------------------------------------------------
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Board of Trustees.
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the adviser or by
affiliates of Federated Investors in advising Federated Funds and other
accounts. To the extent that receipt of these services may supplant services for
which the adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales load on days the New
York Stock Exchange is open for business. The procedure for purchasing shares of
the Fund is explained in the prospectus under "Investing in the Fund."
DISTRIBUTION OF FUND SHARES
- --------------------------------------------------------------------------------
DISTRIBUTION PLAN
The Trust has adopted a Plan pursuant to Rule 12b-1 under the Investment Company
Act of 1940. The Plan permits the payment of fees to brokers for distribution
and administrative services and to administrators for administrative services.
The Plan is designed to (i) stimulate brokers to provide distribution and
administrative support services to the Fund and its shareholders and (ii)
stimulate administrators to render administrative support services to the Fund
and its shareholders. The administrative services are provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals, and include, but are not limited to: communicating account openings;
communicating account closings; entering purchase transactions; entering
redemption transactions; providing or arranging to provide accounting support
for all transactions, wiring funds and receiving funds for Fund share purchases
and redemptions, confirming and reconciling all transactions, reviewing the
activity in Fund accounts, and providing training and supervision of broker
personnel; posting and reinvesting dividends to Fund accounts or arranging for
this service to be performed by the Fund's transfer agent; and maintaining and
distributing current copies of prospectuses and shareholder reports to the
beneficial owners of shares of the Fund and prospective shareholders.
By adopting the Plan, the Board of Trustees expects that the Fund will be able
to achieve a more predictable flow of cash for investment purposes and to meet
redemptions. This will facilitate more efficient portfolio management and assist
the Fund in seeking to achieve its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, the Fund may be able to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits which the Fund hopes to achieve through the Plan include, but are
not limited to, the following: (1) an efficient and effective administrative
system; (2) a more efficient use of shareholder assets by having them rapidly
invested in the Fund, through an automatic transfer of funds from a demand
deposit account to an investment account, with a minimum of delay and
administrative detail; and (3) an efficient and reliable shareholder records
system and prompt responses to shareholder requests and inquiries concerning
their accounts.
- --------------------------------------------------------------------------------
For the years ended May 31, 1994, 1993 and 1992, brokers and administrators
(financial institutions) received fees in the amount of $485,826, $518,479 and
$182,880, respectively, pursuant to the distribution plan.
SHAREHOLDER SERVICING ARRANGEMENTS
For the fiscal years ended May 31, 1994, 1993 and 1992, the distributor paid
$378,108, $520,572, and $194,449, respectively, to brokers and administrators
(financial institutions) as an administrative fee.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
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.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with Rule 2a-7 (the "Rule") of the Investment Company
Act of 1940, as amended. 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.
Under the Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by the Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party on (1) no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.5% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instrument with a remaining maturity of more than 397 days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
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 indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
REDEEMING SHARES
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The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Although State Street Bank does not charge
for telephone redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000.
REDEMPTION IN KIND
Although the Trust intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To the extent available,
such securities will be readily marketable.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving their securities and selling them before their
maturity could receive less than the redemption value of their securities and
could incur certain transaction costs.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If for
some extraordinary reason the Fund realizes net long-term capital gains,
it will distribute them at least once every 12 months.
YIELD
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The Fund calculates its yield daily, based upon the seven days ending on the day
of the calculation, called the "base period." This yield is computed by:
- - determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
- - dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
- - multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
The Fund's yield for the seven-day period ended May 31, 1994, was 3.30%.
EFFECTIVE YIELD
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The Fund's effective yield is computed by compounding the unannualized base
period return by:
- - adding 1 to the base period return;
- - raising the sum to the 365/7th power; and
- - subtracting 1 from the result.
The Fund's effective yield for the seven-day period ended May 31, 1994, was
3.36%.
PERFORMANCE COMPARISONS
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The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates on money market instruments;
- - changes in Fund expenses; and
- - the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "short-term
U.S. government funds" category in advertising and sales literature.
- - SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most
representative yields for selected securities, issued by the U.S. Treasury,
maturing in 30 days.
- - MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
0111203B (7/94)
