- --------------------------------------------------------------------------------
TREASURY
- --------------------------------------------------------------------------------
CASH
- --------------------------------------------------------------------------------
SERIES II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
NOVEMBER 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
147552301
1121606 (1/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Treasury Cash
Series II (the "Fund"), which covers the six-month period ended November 30,
1994. The report includes the Investment Review and Financial Statements, which
contain the Portfolio of Investments.
During the reporting period, the Fund helped your cash earn $0.02 in dividends
per share, while offering the advantages of daily liquidity and stability of
principal.*
At the end of the report period, 81.3% of the Fund's $314 million in assets was
invested in repurchase agreements backed by U.S. government securities because
these securities offered yield advantage over many direct government securities.
The remainder of the Fund's assets were invested in direct U.S. Treasury bills
and notes.
Thank you for choosing the Fund as a convenient way to put your cash to work
earning income from U.S. Treasury obligations. Please contact your investment
representative if you have any questions about the Fund.
Sincerely,
Richard B. Fisher
President
January 15, 1995
* No money market mutual fund can guarantee that a stable net asset value will
be maintained. An investment in the Fund is neither insured nor guaranteed by
the U.S. government.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
Treasury Cash Series II (the "Fund"), which is rated AAAm by Standard & Poor's
Ratings Group and Aaa by Moody's Investors Service, Inc.*, is invested in direct
obligations of the U.S. Treasury, either in the form of notes and bills or as
collateral for repurchase agreements. Recently, the Fund has been managed with a
somewhat conservative average maturity of 30-40 days.
During the reporting period, the Federal Reserve Board (the "Fed") continued its
restrictive interest rate stance. The Fed tightened monetary policy by
increasing the Fed Funds target rate from 4.25% to 5.50% over the period.
Despite the continued low inflationary environment, solid economic growth,
growing employment rolls, and capacity constraints would point toward another
increase to the targeted Fed Funds rate early in 1995.
Movements in short rates were largely driven by fear of an overheating economy
and the resultant inflationary pressures during the reporting period. The rate
on the three-month Treasury bill rose from 4.3% at the end of May 1994, to 5.4%
at the end of November, reflecting the Fed's restrictive stance.
A yield advantage continued to exist for investments in repurchase agreements
versus direct investments in short-term Treasury securities. The barbell
structure of the Fund was maintained over the period, combining a significant
position in overnight repurchase agreements with Treasury securities with longer
maturities of six to twelve months.
Over the reporting period, the Fund's average maturity was maintained on the
defensive end of its range. In light of the expectations of additional
tightenings in monetary policy, the Fund is expected to continue to maintain its
conservative posture in the near future, while maximizing performance through
ongoing relative value analysis. However, changing economic and market
developments are continuously monitored to best serve our clients attracted to
the short-term U.S. government market.
* These ratings are obtained after Standard and Poor's and Moody's evaluate a
number of factors, including credit quality, market price exposure, and
management. They monitor the portfolio weekly for developments that could
cause changes in ratings.
TREASURY CASH SERIES II
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
SHORT-TERM U.S. TREASURY OBLIGATIONS--18.6%
- ----------------------------------------------------------------------------------
* U.S. TREASURY BILLS--11.3%
---------------------------------------------------------------
$36,000,000 4.43%-5.86%, 2/16/95-5/11/95 $ 35,367,992
---------------------------------------------------------------
U.S. TREASURY NOTES--7.3%
---------------------------------------------------------------
23,000,000 3.875%-7.75%, 12/31/94-5/15/95 23,005,246
--------------------------------------------------------------- ------------
TOTAL SHORT-TERM U.S. TREASURY OBLIGATIONS 58,373,238
--------------------------------------------------------------- ------------
**REPURCHASE AGREEMENTS--81.3%
- ----------------------------------------------------------------------------------
15,000,000 Bank of Tokyo, Ltd., 5.75%, dated 11/30/94, due 12/1/94 15,000,000
---------------------------------------------------------------
29,400,000 Barclays Bank PLC, 5.72%, dated 11/30/94, due 12/1/94 29,400,000
---------------------------------------------------------------
25,000,000 BT Securities Corp., 5.78%, dated 11/30/94, due 12/1/94 25,000,000
---------------------------------------------------------------
10,000,000 Chase Manhattan Bank, N.A., 5.70%, dated 11/30/94, due 12/1/94 10,000,000
---------------------------------------------------------------
15,000,000 Chemical Securities, Inc., 5.72%, dated 11/30/94, due 12/1/94 15,000,000
---------------------------------------------------------------
5,000,000 Daiwa Securities America, Inc., 5.72%, dated 11/30/94, due
12/1/94 5,000,000
---------------------------------------------------------------
10,000,000 Deutsche Bank Capital Corp., 5.77%, dated 11/30/94, due 12/1/94 10,000,000
---------------------------------------------------------------
15,000,000 Donaldson, Lufkin & Jenrette Securities Corp., 5.70%,
dated 11/30/94, due 12/1/94 15,000,000
---------------------------------------------------------------
15,000,000 First Chicago Bank, 5.71%, dated 11/30/94, due 12/1/94 15,000,000
---------------------------------------------------------------
15,000,000 Fuji Securities, Inc., 5.72%, dated 11/30/94, due 12/1/94 15,000,000
---------------------------------------------------------------
10,000,000 Harris Trust & Savings Bank, 5.77%, dated 11/30/94, due 12/1/94 10,000,000
---------------------------------------------------------------
5,000,000 J.P. Morgan Securities, Inc., 5.77%, dated 11/30/94, due
12/1/94 5,000,000
---------------------------------------------------------------
15,000,000 NCNB Corp., 5.73%, dated 11/30/94, due 12/1/94 15,000,000
---------------------------------------------------------------
15,000,000 HSBC Securities, Inc., 5.80%, dated 11/30/94, due 12/1/94 15,000,000
---------------------------------------------------------------
5,000,000 Nikko Securities Co., 5.72%, dated 11/30/94, due 12/1/94 5,000,000
---------------------------------------------------------------
25,000,000 UBS Securities, Inc., 5.77%, dated 11/30/94, due 12/1/94 25,000,000
---------------------------------------------------------------
5,000,000 (a) First Boston Corp., 5.08%, dated 11/4/94, due 12/5/94 5,000,000
---------------------------------------------------------------
6,000,000 (a) Morgan Stanley & Co., Inc., 5.47%, dated 11/17/94, due 12/12/94 6,000,000
---------------------------------------------------------------
</TABLE>
TREASURY CASH SERIES II
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- --------------------------------------------------------------- ------------
<C> <C> <S> <C>
**REPURCHASE AGREEMENTS--CONTINUED
- ----------------------------------------------------------------------------------
$ 4,000,000 (a) Daiwa Securities America, Inc., 5.25%, dated 11/9/94, due
12/20/94 $ 4,000,000
---------------------------------------------------------------
7,000,000 (a) Morgan Stanley & Co., Inc., 5.46%, dated 11/25/94, due 12/20/94 7,000,000
---------------------------------------------------------------
4,000,000 (a) Merrill Lynch Government Securities, Inc., 5.20%, dated
10/28/94, due 12/27/94 4,000,000
--------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 255,400,000
--------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $313,773,238+
--------------------------------------------------------------- ------------
</TABLE>
+ Also represents cost for federal tax purposes.
* Each issue shows rate of discount at time of purchase.
** 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.
(a) Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement.
Note: The categories of investments are shown as a percentage of net assets
($314,073,007) at November 30, 1994.
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -----------------------------------------------------------------
Investments in repurchase agreements $255,400,000
- -----------------------------------------------------------------
Investments in other securities 58,373,238
- ----------------------------------------------------------------- ------------
Total investments, at amortized cost and value $313,773,238
- --------------------------------------------------------------------------------
Cash 195,594
- --------------------------------------------------------------------------------
Interest receivable 429,311
- --------------------------------------------------------------------------------
Deferred expenses 37,258
- -------------------------------------------------------------------------------- ------------
Total assets 314,435,401
- --------------------------------------------------------------------------------
LIABILITIES:
- -----------------------------------------------------------------
Dividends payable 234,660
- -----------------------------------------------------------------
Payable for Fund shares redeemed 917
- -----------------------------------------------------------------
Accrued expenses 126,817
- ----------------------------------------------------------------- ------------
Total liabilities 362,394
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 314,073,007 shares of beneficial interest outstanding $314,073,007
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($314,073,007 / 314,073,007 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
SIX MONTHS ENDED NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income $5,603,343
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $597,475
- ----------------------------------------------------------------------
Distribution services fee 238,990
- ----------------------------------------------------------------------
Trustees' fees 2,141
- ----------------------------------------------------------------------
Administrative personnel and services fees 90,458
- ----------------------------------------------------------------------
Custodian and portfolio accounting fees 68,846
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 16,367
- ----------------------------------------------------------------------
Fund share registration costs 14,291
- ----------------------------------------------------------------------
Auditing fees 7,192
- ----------------------------------------------------------------------
Legal fees 5,215
- ----------------------------------------------------------------------
Printing and postage 3,952
- ----------------------------------------------------------------------
Taxes 110
- ----------------------------------------------------------------------
Insurance premiums 4,172
- ----------------------------------------------------------------------
Miscellaneous 5,318
- ---------------------------------------------------------------------- --------
Total expenses 1,054,527
- --------------------------------------------------------------------------------- ----------
Net investment income $4,548,816
- --------------------------------------------------------------------------------- ----------
</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,
------------------------------
1995* 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 4,548,816 $ 5,902,413
- -------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Dividends to shareholders from net investment income (4,548,816) (5,902,413)
- -------------------------------------------------------------- ------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 441,554,914 658,832,271
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
dividends declared 3,405,367 4,890,179
- --------------------------------------------------------------
Cost of shares redeemed (360,769,626) (744,488,408)
- -------------------------------------------------------------- ------------- -------------
Change in net assets from Fund share transactions 84,190,655 (80,765,958)
- -------------------------------------------------------------- ------------- -------------
Change in net assets 84,190,655 (80,765,958)
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 229,882,352 310,648,310
- -------------------------------------------------------------- ------------- -------------
End of period $ 314,073,007 $ 229,882,352
- -------------------------------------------------------------- ------------- -------------
</TABLE>
*Six months ended November 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
--------------------------------------------------
1995* 1994 1993 1992 1991**
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------
Net investment income 0.02 0.02 0.03 0.04 0.02
- -----------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------
Dividends to shareholders from net
investment income (0.02) (0.02) (0.03) (0.04) (0.02 )
- ----------------------------------------- ---- ----- ----- ----- ------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------- ---- ----- ----- ----- ------
TOTAL RETURN*** 1.89 % 2.47% 2.64% 4.41% 2.06 %
- -----------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------
Expenses 0.88 %(a) 0.89% 0.78% 0.73% 0.47 %(a)
- -----------------------------------------
Net investment income 3.81 %(a) 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) $314,073 $229,882 $310,648 $104,371 $70,798
- -----------------------------------------
</TABLE>
* Six months ended November 30, 1994 (unaudited).
** 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 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.
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Cash Trust Series II (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), 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
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. These
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 Act.
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's adviser to
be creditworthy pursuant to guidelines established by the Board of Trustees (the
"Trustees").
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued
daily. Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended ("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 not to exceed 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
November 30, 1994, capital paid-in aggregated $314,073,007. Transactions in Fund
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1995* 1994
- -------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 441,554,914 658,832,271
- --------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 3,405,367 4,890,179
- --------------------------------------------------------------
Shares redeemed (360,769,626) (744,488,408)
- -------------------------------------------------------------- ------------ ------------
Net change resulting from Fund share transactions 84,190,655 (80,765,958)
- -------------------------------------------------------------- ------------ ------------
</TABLE>
* Six months ended November 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services an annual investment advisory fee equal to
.50 of 1% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with administrative personnel and services. The FAS 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 the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE--The Fund has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the Act. Under the terms of the Plan, the Fund will
reimburse Federated Securities Corp. ("FSC"), the principal distributor, from
the net assets of the Fund to finance activities intended to result in the sale
of the Fund's shares. The Plan provides that the Fund may incur distribution
expenses up to .20 of 1% of the average daily net assets of the shares,
annually, to reimburse FSC.
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
FServ fee is based on the size, type and number of accounts and transactions
made by shareholders.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
J. Christopher Donahue J. Christopher Donahue
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risks,
including possible loss of principal. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses and other information.
- --------------------------------------------------------------------------------
MUNICIPAL
- --------------------------------------------------------------------------------
CASH
- --------------------------------------------------------------------------------
SERIES II
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
TO SHAREHOLDERS
NOVEMBER 30, 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
147552103
1121604 (1/95)
PRESIDENT'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders for Municipal
Cash Series II (the "Fund"), which covers the six-month period ended November
30, 1994. The report includes the Investment Review and Financial Statements,
which contain the Portfolio of Investments.
During the period, the Fund helped your cash earn $0.01 per share in dividends
exempt from federal regular income tax,* with the advantages of daily liquidity
and stability of principal.**
At the end of the period, the Fund's $99.9 million in assets was invested in a
diversified portfolio of short-term securities issued by municipalities across
21 states.
Thank you for choosing the Fund as a convenient way to put your cash to work.
Please contact your investment representative if you have any questions about
the Fund.
Sincerely,
Richard B. Fisher
President
January 15, 1995
* Income may be subject to the federal alternative minimum tax and state and
local taxes.
** No money market mutual fund can guarantee that a stable net asset value will
be maintained. An investment in the Fund is neither insured nor guaranteed by
the U.S. government.
INVESTMENT REVIEW
- --------------------------------------------------------------------------------
An Interview with Fund Portfolio Manager Mary Jo Ochson
Q Recently, there has been a lot of concern, as well as press coverage, about
the subject of derivatives. What are derivatives?
A The term "derivative" has been applied to many different types of
investments. In the context of money market funds, derivatives generally
refer to adjustable rate securities designed for speculation on changes in
interest rates. These speculative derivatives provide above-market yields when
interest rates fall or remain stable, or when the yield curve is steep. They
provide below-market yields, however, when interest rates rise or become more
volatile, or when the yield curve flattens. All three of these latter conditions
occurred in 1994. As a result, many of these speculative securities lost a
significant part of their value, enough to threaten the $1.00 per share price of
some money market funds.
It is important to distinguish these speculative derivatives from adjustable
rate securities that are indexed to money market interest rates. These indexed
securities are designed to track changes in market rates, and should approximate
their par value in reasonably foreseeable market conditions. Tax-exempt money
market funds like the Fund have the right to tender many of these securities for
purchase at their par value. Money market funds have used these securities for
decades, through several interest rate cycles, without jeopardizing their stable
net asset values.
Q Do money market funds advised by Federated Investors ("Federated") invest
in the derivatives that have been in the headlines recently?
A No. None of the money market funds advised by Federated has invested in any
of the types of derivatives that have been in the headlines lately. Our
mutual funds only invest in adjustable rate securities that track changes
in money market interest rates.
With respect to speculative derivatives, we determined from the outset that the
potential volatility of these securities was contrary to the intent of the rules
governing the use of variable rate securities by money market funds. We also
realized the potential for these securities to deviate significantly from par
and threaten the $1.00 per share price of a money market fund. We spoke out
against the use of these securities by money market funds at industry
conferences throughout 1993, when the securities still offered attractive
yields. Our views were vindicated when, in June, 1994, the Securities and
Exchange Commission sent a letter to the Investment Company Institute requiring
money market funds to divest themselves of these securities in an orderly
manner.
- --------------------------------------------------------------------------------
Q What happened to short-term interest rates over the past year?
A There was a dramatic shift in the monetary policy of the Federal Reserve
Board (the "Fed") during the 12 months preceding November 30, 1994.
Throughout the fourth quarter of 1993, the Fed kept the Federal funds rate (the
rate banks charge each other for overnight loans) steady at 3.00%, where it had
been for a year and a half. The Fed had maintained short-term interest rates at
these low levels in order to stimulate the economy. However, in early 1994,
reports began to show stronger than anticipated economic growth. Real Gross
National Product grew at a 7.00% annual rate in the fourth quarter of 1993, and
the national unemployment rate declined to 6.00%. Concerned that these factors
could lead to an increase in wages and prices, the Fed took the first step on
February 4, 1994, to fight future inflation by raising its Federal funds rate
target to 3.25%. Since then, the Fed has continued to be aggressive, moving the
Federal funds rate target upward five more times from 3.25% to 5.50%.
Q How did municipal money market yields react to these rate increases?
A Municipal money market interest rates followed the upward movement in
taxable rates but to a slightly lesser degree, as they are affected by
federal, state and local tax factors as well as market supply and demand
imbalances.
The Fund's yields have proven to be responsive to the increases in money market
rates. As of November 30, 1994, the Fund's tax-free, annualized seven-day net
yield was 3.10%.* This was equivalent to a taxable yield of 5.13% for those
investors subject to the highest federal and state tax brackets.** These numbers
illustrate the Fund's attractiveness relative to taxable investments.
* Performance quoted represents past performance and is not indicative of
future results. Yields will vary.
** These numbers assume that state income taxes are fully deductible in
computing federal income tax liability.
- --------------------------------------------------------------------------------
Q What is your outlook for the markets and the Fund?
A The economy continues to show surprising resilience to the Fed's attempts
to bring growth under control. We expect that the Fed will act again to
tighten monetary policy in the first quarter of 1995. At that point in
time, the Federal funds target could be as high as 6.50%. As a result, we plan
to maintain a conservative posture in the near future, while attempting to
maximize performance through ongoing relative value analysis. However, we will
continue to monitor changing economic and market developments so as to serve our
clients attracted to the short-term tax-exempt securities market. In this
environment, stable net asset value money market funds like the Fund will
continue to be an important component in preserving capital, and should reflect
rising short-term interest rates with increasing net yields.
Q On December 6, 1994, the Board of Supervisors of Orange County, California
filed a Bankruptcy Petition under Chapter 9 of the Bankruptcy Code on
behalf of the county and the county investment pool. What effect does this
petition have on the Fund?
A The Fund has no exposure to obligations of Orange County, California.
Additionally, we do not have any exposure to the other 100+ Orange County
municipalities that are participants in the Orange County pool. Therefore,
the Orange County Bankruptcy Petition does not present a threat to the $1.00 per
share net asset value of the Fund.
MUNICIPAL CASH SERIES II
PORTFOLIO OF INVESTMENTS
NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT
RATING:
PRINCIPAL MOODY'S
AMOUNT OR S&P* VALUE
- ---------- -------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES--99.8%
- ----------------------------------------------------------------------
ALABAMA--2.9%
--------------------------------------------------------
$ 965,000 Abbeville and Mobile, AL, IDB Monthly VRDNs (Great
Southern Wood Preserving Co.)/(SouthTrust Bank of
Alabama LOC)/(Subject to AMT) A-1 $ 965,000
--------------------------------------------------------
1,645,000 Mobile, AL, Downtown Redevelop Authority, 2.70% 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 2,915,000
-------------------------------------------------------- -----------
ARKANSAS--1.0%
--------------------------------------------------------
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--3.4%
--------------------------------------------------------
2,400,000 Riverside County, CA, IDA Weekly VRDNs (1991 Series A)/
(Golden West Homes Project)/(Wells Fargo, N.A., San
Francisco LOC)/(Subject to AMT) VMIG1 2,400,000
--------------------------------------------------------
1,000,000 Sacramento County, CA, Housing Authority, 3.10% TOBs
(Series 1992-A)/(Shadowwood Apartments Project)/
(General Electric Capital Corp. LOC)/(Subject to AMT),
Mandatory Tender 12/1/94 A-1+ 1,000,000
-------------------------------------------------------- -----------
Total 3,400,000
-------------------------------------------------------- -----------
COLORADO--3.0%
--------------------------------------------------------
3,000,000 Denver, (City & County), CO, Weekly VRDNs (Series
1992F)/(Bank of Montreal 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
- ----------------------------------------------------------------------
FLORIDA--0.4%
--------------------------------------------------------
$ 400,000 Clay County, FL, Weekly VRDNs Development Authority IDRB
(Series 1994)/(Carlisle Corporation Project)/
(Trust Company Bank, Atlanta LOC) P-1 $ 400,000
-------------------------------------------------------- -----------
ILLINOIS--3.2%
--------------------------------------------------------
1,000,000 Chicago, IL, Gas Supply, 4.95% Annual TOBs (Series
1993B)/(Peoples Gas Light & Coke Company)/ (Subject to
AMT), Mandatory Tender 12/1/95 VMIG1 1,000,000
--------------------------------------------------------
2,240,000 Illinois Development Finance Authority Weekly VRDNs
(Techisand, Inc.)/(National City Bank, Cleveland LOC)/
(Subject to AMT) P-1 2,240,000
-------------------------------------------------------- -----------
Total 3,240,000
-------------------------------------------------------- -----------
INDIANA--5.0%
--------------------------------------------------------
3,565,000 Avilla, IN, IDR Weekly VRDNs (Group Dekko International,
Inc.)/(Bank One, Indianapolis N.A. LOC) P-1 3,565,000
--------------------------------------------------------
1,415,000 Indiana Development Finance Authority, Weekly VRDNs
(T.M. Morris Manufacturing Co., Inc. Project)/(Bank One,
Indianapolis N.A. LOC) P-1 1,415,000
-------------------------------------------------------- -----------
Total 4,980,000
-------------------------------------------------------- -----------
KENTUCKY--2.0%
--------------------------------------------------------
2,000,000 Scottsville, KY, IDA, 4.10% Semi-Annual TOBs (Sumitomo
Electric Wiring Systems)/(Sumitomo Bank, Ltd. LOC)/
(Subject to AMT), Optional Tender 5/1/95 A-1 2,000,000
-------------------------------------------------------- -----------
MARYLAND--2.6%
--------------------------------------------------------
2,575,000 Baltimore, MD, Weekly VRDNs (Series 1988)/(Cherill
Associates Facility)/(Nationsbank of Maryland LOC)/
(Subject to AMT) P-1 2,575,000
-------------------------------------------------------- -----------
</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
- ----------------------------------------------------------------------
NEVADA--2.5%
--------------------------------------------------------
$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--5.3%
--------------------------------------------------------
2,300,000 New Hampshire HEFA Weekly VRDNs (Series 1994)/
(Colby-Sawyer College Issue)/(BayBank, MA LOC), 7/1/2014 P-1 2,300,000
--------------------------------------------------------
3,000,000 New Hampshire Business Finance Authority PCR, 3.70% CP
(Series 1990A)/(New England Power Co. Guaranty),
Mandatory Tender 1/26/95 A-1 3,000,000
-------------------------------------------------------- -----------
Total 5,300,000
-------------------------------------------------------- -----------
NEW JERSEY--4.0%
--------------------------------------------------------
2,000,000 Hudson County, NJ, 4.55% BANs, 10/11/95 NR(4) 2,002,467
--------------------------------------------------------
1,975,000 Pennsauken Township, NJ, 4.00% BANs, 1/10/95 NR(3) 1,975,311
-------------------------------------------------------- -----------
Total 3,977,778
-------------------------------------------------------- -----------
NEW YORK--6.5%
--------------------------------------------------------
3,000,000 Central Islip, NY, 4.50% TANs, 6/30/95 NR 3,008,328
--------------------------------------------------------
3,475,000 South County Central School District, NY, 4.50% TANs,
6/29/95 NR 3,479,485
-------------------------------------------------------- -----------
Total 6,487,813
-------------------------------------------------------- -----------
NORTH CAROLINA--7.7%
--------------------------------------------------------
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
--------------------------------------------------------
4,000,000 Richmond County, NC, Industrial Facilities & Pollution
Control Weekly VRDNs (Series 1991)/(Bibb Company)/
(Citibank N.A. LOC) P-1 4,000,000
--------------------------------------------------------
</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
- ----------------------------------------------------------------------
NORTH CAROLINA--CONTINUED
--------------------------------------------------------
$2,800,000 Rutherford County, NC, Industrial Facilities Pollution
Control Financing Authority, Weekly VRDNs (Spring-Ford
Knitting Co.)/(Branch Banking & Trust Co. LOC) P-1 $ 2,800,000
-------------------------------------------------------- -----------
Total 7,650,000
-------------------------------------------------------- -----------
OHIO--2.6%
--------------------------------------------------------
2,000,000 Ohio State Air Quality Development Authority, 4.25%
Annual TOBs (Series C)/(Ohio Edison Co.)/(Barclays Bank
PLC LOC), Optional Tender 9/1/95 A-1+ 2,000,000
--------------------------------------------------------
600,000 Youngstown City School District, OH, 5.45% RAN, (Series
1994-2) 7/1/95 NR 603,194
-------------------------------------------------------- -----------
Total 2,603,194
-------------------------------------------------------- -----------
OKLAHOMA--5.4%
--------------------------------------------------------
1,400,000 Broken Arrow, OK, EDA Weekly VRDNs (Blue Bell
Creameries, Inc.)/(Banque Nationale de Paris LOC) VMIG1 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--7.3%
--------------------------------------------------------
1,600,000 Allegheny County, PA, IDA, 3.95%, (USX Marathon
Group)/(Long Term Credit Bank of Japan, Ltd. LOC)
Mandatory Tender 1/13/95 A-2 1,600,000
--------------------------------------------------------
5,000,000 Clinton County, PA, IDA Solid Waste Disposal, 2.90%
Annual TOBs (Series 1992A)/(International Paper Co.
Guaranty)/(Subject to AMT), Optional Tender 1/15/95 A-2 5,000,000
--------------------------------------------------------
700,000 Pennsylvania EDA Weekly VRDNs (Series F)/(Respironics,
Inc.)/(Pittsburgh National Bank LOC)/(Subject to AMT) P-1 700,000
-------------------------------------------------------- -----------
Total 7,300,000
-------------------------------------------------------- -----------
</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
- ----------------------------------------------------------------------
TENNESSEE--3.7%
--------------------------------------------------------
$1,000,000 Cocke County, TN, IDR Weekly VRDNs (GCI, Inc.)/
(Sanwa Bank Ltd. LOC)/(Subject to AMT) P-1 $ 1,000,000
--------------------------------------------------------
700,000 Paris City, TN, IDB Weekly VRDNs (Plumley-Mareigo,
Ltd.)/(Citizens Fidelity Bank LOC)/(Subject to AMT) P-1 700,000
--------------------------------------------------------
2,000,000 Roane County, TN, IDB Solid Waste Disposal, 4.85% Annual
TOBs (Series 1990A)/(Horsehead Resources Development
Co., Inc.)/(Long Term Credit Bank of Japan LTD. LOC)/
(Subject to AMT), Mandatory Tender 11/1/95 A-2 2,000,000
-------------------------------------------------------- -----------
Total 3,700,000
-------------------------------------------------------- -----------
TEXAS--4.7%
--------------------------------------------------------
3,000,000 Brazos River Authority, TX, 3.95% CP (Series
1994B)/(Texas Utilities Electric Co.)/(Canadian Imperial
Bank of Commerce LOC)/(Subject to AMT), Mandatory Tender
2/13/95 A-1 3,000,000
--------------------------------------------------------
1,700,000 Harris County, TX, IDC Daily VRDNs (Yokohoma Tire
Corp.)/(Industrial Bank of Japan Ltd. LOC)/
(Subject to AMT) A-1 1,700,000
-------------------------------------------------------- -----------
Total 4,700,000
-------------------------------------------------------- -----------
VIRGINIA--14.8%
--------------------------------------------------------
4,000,000 Halifax County, VA, IDA MMMs, PCR, 3.25% CP
(Virginia Electric Power Co.)/(Subject to AMT),
Mandatory Tender 12/20/94 VMIG1 4,000,000
--------------------------------------------------------
3,000,000 Richmond, VA, Redevelopment and Housing Authority Weekly
VRDNs (Series B-1)/(Richmond VA Red Tobacco
Row)/(Bayerische Landesbank Girozentrale GIC) VMIG1 3,000,000
--------------------------------------------------------
3,555,000 Richmond, VA, Redevelopment and Housing Authority Weekly
VRDNs (Series B-8)/(Richmond VA Red Tobacco
Row)/(Bayerische Landesbank Girozentrale GIC) VMIG1 3,555,000
--------------------------------------------------------
</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
- ----------------------------------------------------------------------
VIRGINIA--CONTINUED
--------------------------------------------------------
$3,000,000 Richmond, VA, Redevelopment and Housing Authority Weekly
VRDNs (Series B-1)/(Richmond VA Red Tobacco
Row)/(Bayerische Landesbank Girozentrale GIC) VMIG1 $ 3,000,000
--------------------------------------------------------
1,200,000 Virginia Peninsula Port Authority, Weekly VRDNs (Kinyo
Virginia, Inc.)/(Industrial Bank of Japan LOC) VMIG1 1,200,000
-------------------------------------------------------- -----------
Total 14,755,000
-------------------------------------------------------- -----------
WISCONSIN--11.8%
--------------------------------------------------------
3,150,000 Germantown, WI, IDA Weekly VRDNs (Zenith Sintered
Products, Inc.)/(Bank One, Milwaukee LOC)/
(Subject to AMT) P-1 3,150,000
--------------------------------------------------------
2,020,000 Plover Village, WI, Weekly VRDNs (Series 1994)/(Sirco
Manufacturing, Inc.)/(Norwest Bank, Minneapolis LOC)/
(Subject to AMT) P-1 2,020,000
--------------------------------------------------------
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
--------------------------------------------------------
2,800,000 Portage, WI, IDRB, Weekly VRDNs (Series 1994)/(Portage
Industries Corporation Project)/(Bank One, Milwaukee
LOC) P-1 2,800,000
--------------------------------------------------------
1,840,000 Wisconsin Housing and Economic Development Authority,
4.10% Semi-Annual TOBs (Series B)/(FSA Insured)/
(Subject to AMT), Optional Tender 3/1/95 NR(1) 1,840,000
-------------------------------------------------------- -----------
Total 11,810,000
-------------------------------------------------------- -----------
TOTAL INVESTMENTS, AT AMORTIZED COST $99,693,785+
-------------------------------------------------------- -----------
</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.
Note: The categories of investment are shown as a percentage of net assets
($99,870,472) at November 30, 1994.
MUNICIPAL CASH SERIES II
- --------------------------------------------------------------------------------
The following abbreviations are used in this portfolio:
<TABLE>
<S> <C>
AMT -- Alternative Minimum Tax
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
EDA -- Economic Development Authority
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
HEFA -- Health and Education Facilities Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDC -- Industrial Development Corporation
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bonds
LOC -- Letter of Credit
MMMs -- Money Market Municipals
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
RANs -- Revenue Anticipation Notes
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
NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments, at amortized cost and value $ 99,693,785
- --------------------------------------------------------------------------------
Cash 660,312
- --------------------------------------------------------------------------------
Interest receivable 616,081
- --------------------------------------------------------------------------------
Receivable for Fund shares sold 200,362
- --------------------------------------------------------------------------------
Deferred expenses 27,372
- -------------------------------------------------------------------------------- ------------
Total assets 101,197,912
- --------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------
Payable for investments purchased $1,000,000
- -------------------------------------------------------------------
Payable for Fund shares redeemed 200,244
- -------------------------------------------------------------------
Dividends payable 115,174
- -------------------------------------------------------------------
Accrued expenses 12,022
- ------------------------------------------------------------------- ----------
Total liabilities 1,327,440
- -------------------------------------------------------------------------------- ------------
NET ASSETS for 99,870,472 shares of beneficial interest outstanding $ 99,870,472
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price, and Redemption Proceeds Per Share:
($99,870,472 / 99,870,472 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
SIX MONTHS ENDED NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest income $1,648,983
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $253,515
- ----------------------------------------------------------------------
Distribution services fee 101,406
- ----------------------------------------------------------------------
Trustees' fees 1,808
- ----------------------------------------------------------------------
Administrative personnel and services fees 63,752
- ----------------------------------------------------------------------
Custodian and portfolio accounting fees 31,199
- ----------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 14,810
- ----------------------------------------------------------------------
Fund share registration costs 15,798
- ----------------------------------------------------------------------
Auditing fees 6,477
- ----------------------------------------------------------------------
Legal fees 4,669
- ----------------------------------------------------------------------
Printing and postage 5,423
- ----------------------------------------------------------------------
Insurance premiums 3,032
- ----------------------------------------------------------------------
Miscellaneous 6,677
- ---------------------------------------------------------------------- --------
Total expenses 508,566
- ----------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 108,057
- ---------------------------------------------------------------------- --------
Net expenses 400,509
- --------------------------------------------------------------------------------- ----------
Net investment income $1,248,474
- --------------------------------------------------------------------------------- ----------
</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,
--------------------------------
1995* 1994
------------- ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 1,248,474 $ 2,474,809
- ------------------------------------------------------------- ------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------
Dividends to shareholders from net investment income (1,248,474) (2,474,809)
- ------------------------------------------------------------- ------------- ---------------
FUND SHARE (PRINCIPAL) TRANSACTIONS--
- -------------------------------------------------------------
Proceeds from sale of shares 315,335,438 1,279,506,572
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of dividends declared 967,411 2,011,384
- -------------------------------------------------------------
Cost of shares redeemed (348,202,063) (1,254,311,439)
- ------------------------------------------------------------- ------------- ---------------
Change in net assets from Fund share transactions (31,899,214) 27,206,517
- ------------------------------------------------------------- ------------- ---------------
Change in net assets (31,899,214) 27,206,517
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 131,769,686 104,563,169
- ------------------------------------------------------------- ------------- ---------------
End of period $ 99,870,472 $ 131,769,686
- ------------------------------------------------------------- ------------- ---------------
</TABLE>
* Six months ended November 30, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------
1995* 1994 1993 1992 1991**
----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------
Net investment income 0.01 0.02 0.02 0.04 0.01
- --------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------
Dividends to shareholders from net
investment income (0.01) (0.02) (0.02) (0.04) (0.01)
- -------------------------------------------- ---- ----- ----- ----- ----
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 $1.00 $1.00
- -------------------------------------------- ---- ----- ----- ----- ----
TOTAL RETURN*** 1.25 % 1.99% 2.29% 3.72% 1.19%
- --------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------
Expenses 0.79 %(a) 0.79% 0.77% 0.74% 0.47%(a)
- --------------------------------------------
Net investment income 2.46 %(a) 1.97% 2.23% 3.56% 4.68%(a)
- --------------------------------------------
Expense waiver/reimbursement (b) 0.21 %(a) 0.28% 0.50% 0.50% 0.39%(a)
- --------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------
Net assets, end of period (000 omitted) $99,870 $131,770 $104,563 $65,628 $34,048
- --------------------------------------------
</TABLE>
* Six months ended November 30, 1994 (unaudited).
** 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.
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1994
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
Cash Trust Series II (the "Trust") is registered under the Investment Company
Act of 1940, as amended (the "Act"), 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
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 Act.
B. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
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 provisions for federal tax are 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 on 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
expense of registering the shares, have been deferred and are being amortized
using the straight-line method not to exceed 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 Board of Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (without par value).
At November 30, 1994, capital paid-in aggregated $99,870,472. Transactions in
Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
------------------------------
1995* 1994
- --------------------------------------------------------------- ------------ --------------
<S> <C> <C>
Shares sold 315,335,438 1,279,506,572
- ---------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 967,411 2,011,384
- ---------------------------------------------------------------
Shares redeemed (348,202,063) (1,254,311,439)
- --------------------------------------------------------------- ------------ --------------
Net change resulting from Fund share transactions (31,899,214) 27,206,517
- --------------------------------------------------------------- ------------ --------------
</TABLE>
* Six months ended November 30, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Federated Advisers, the Fund's investment adviser (the
"Adviser"), receives for its services 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. The Adviser can modify or terminate this
voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
administrative personnel and services. The FAS 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 the
period of the Administrative Services Agreement shall be at least $125,000 per
portfolio and $30,000 per each additional class of share.
DISTRIBUTION FEE--The Fund has adopted a Distribution Plan (the "Plan") pursuant
to Rule 12b-1 under the Act. Under the terms of the Plan the Fund will reimburse
Federated Securities Corp. ("FSC"), the principal distributor, from the net
assets of the Fund to finance activities intended to result in the sale of the
Fund's shares. The Plan provides that the Fund may incur distribution expenses
up to .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 six months ended November
30, 1994, the Fund paid $2,673 and $5,346, respectively, pursuant to this
agreement.
INTERFUND TRANSACTIONS--During the six months ended November 30, 1994, the Fund
engaged in purchase and sale transactions with other affiliated funds at current
value pursuant to Rule 17a-7 under the Act amounting to $127,095,000 and
$157,290,000, respectively.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
<TABLE>
<S> <C>
TRUSTEES OFFICERS
- --------------------------------------------------------------------------------
John F. Donahue John F. Donahue
Thomas G. Bigley Chairman
John T. Conroy, Jr. Richard B. Fisher
William J. Copeland President
J. Christopher Donahue J. Christopher Donahue
James E. Dowd Vice President
Lawrence D. Ellis, M.D. Edward C. Gonzales
Edward L. Flaherty, Jr. Vice President and Treasurer
Peter E. Madden John W. McGonigle
Gregor F. Meyer Vice President and Secretary
Wesley W. Posvar David M. Taylor
Marjorie P. Smuts Assistant Treasurer
Charles H. Field
Assistant Secretary
</TABLE>
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment risks,
including possible loss of principal. Although money market funds seek to
maintain a stable net asset value of $1.00 per share, there is no assurance that
they will be able to do so.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the Fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
