MUNICIPAL CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
PROSPECTUS
The shares of Municipal Cash Series II (the "Fund") offered by this
prospectus represent interests in a portfolio of Cash Trust Series II (the
"Trust"), an open-end management investment company (a mutual fund). The
Fund invests in short-term municipal securities to provide current income
exempt from federal regular income tax consistent with stability of
principal.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. 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.
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,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have
received your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information, or make inquiries about the
Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
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, 1996
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
Municipal Securities 5
Investment Risks 6
Investment Limitations 6
Trust Information 7
Management of the Fund 7
Distribution of Shares 7
Administration of the Fund 8
Net Asset Value 9
How to Purchase Shares 9
Special Purchase Features 10
How to Redeem Shares 10
Special Redemption Features 11
Account and Share Information 12
Tax Information 13
Federal Income Tax 13
State and Local Taxes 13
Performance Information 14
Financial Statements 15
Independent Auditors' Report 27
Addresses 28
SUMMARY OF FUND EXPENSES
MUNICIPAL CASH SERIES II
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price) None
Maximum Sales Charge 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
<CAPTION>
ANNUAL OPERATING EXPENSES
(As a percentage of average net
assets)
<S> <C> <C>
Management Fee (after waiver)(1) 0.19%
12b-1 Fee 0.20%
Total Other Expenses 0.40%
Shareholder Services Fee None
Total 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 operating expenses were 1.10% 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 "Trust 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 $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
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of Deloitte & Touche LLP, Independent
Auditors, on page 27.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995 1994 1993 1992 1991(A)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.03 0.03 0.02 0.02 0.04 0.01
LESS DISTRIBUTIONS
Distributions from net
investment income (0.03) (0.03) (0.02) (0.02) (0.04) (0.01)
NET ASSET VALUE, END OF
PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(B) 3.22% 3.02% 1.99% 2.29% 3.72% 1.19%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.79% 0.79% 0.79% 0.77% 0.74% 0.47%*
Net investment income 3.17% 2.91% 1.97% 2.23% 3.56% 4.68%*
Expense waiver(c) 0.31% 0.23% 0.28% 0.50% 0.50% 0.39%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $59,888 $67,611 $131,770 $104,563 $65,628 $34,048
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 13, 1991 (date of
initial public investment) to May 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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)
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 representing interests
in separate portfolios of securities. 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, portfolio investing in
short-term municipal securities. The Fund may not be a suitable investment
for retirement plans because it invests in municipal securities. A minimum
initial investment of $25,000 is required.
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income exempt
from all federal regular income tax consistent with stability of principal.
This investment objective cannot be changed without shareholder approval.
While there is no assurance that the Fund will achieve its investment
objective, it endeavors to do so by complying with the diversification and
other requirements of Rule 2a-7 under the Investment Company Act of 1940
which regulates money market mutual funds and by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
municipal securities maturing in 13 months or less. The average maturity of
the securities in the Fund's portfolio, computed on a dollar-weighted basis,
will be 90 days or less. As a matter of investment policy, which cannot be
changed without shareholder approval, at least 80% of the Fund's annual
interest income will be exempt from federal regular income tax. (Federal
regular income tax does not include the federal individual alternative
minimum tax or the federal alternative minimum tax for corporations.) Unless
indicated otherwise, the investment policies may be changed by the Board of
Trustees ("Trustees") without shareholder approval. 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 issued to finance working capital needs
in anticipation of receiving taxes or other revenues;
* bond anticipation notes 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; and
* participation, trust, and partnership interests in any of the foregoing
obligations.
VARIABLE RATE DEMAND NOTES
Variable rate demand notes are long-term debt instruments 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 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
rate 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 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. 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. Lease
obligations may be subject to periodic appropriation. Municipal leases are
subject to certain specific risks in the event of default or failure of
appropriation.
CREDIT ENHANCEMENT
Certain of the Fund's acceptable investments may be credit-enhanced by a
guaranty, letter of credit, or insurance. Any bankruptcy, receivership,
default or change in the credit quality of the party providing the credit
enhancement will adversely affect the quality and marketability of the
underlying security and could cause losses to the Fund and affect its share
price. 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.
WHEN-ISSUED AND DELAYED
DELIVERY TRANSACTIONS
The Fund may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's failure
to complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. 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. Accordingly, the Fund may pay
more or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
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 law. Under criteria established by the Trustees, certain
restricted securities are determined to be liquid. To the extent that
restricted securities are not determined to be liquid the Fund will limit
their purchase, together with other illiquid securities, to 10% of its net
assets. This investment policy cannot be changed without shareholder
approval.
TEMPORARY INVESTMENTS
From time to time, when the investment adviser determines that market
conditions call for a temporary defensive posture, the Fund may invest in
tax-exempt or taxable securities, all of comparable quality to other
securities in which the Fund invests, such as: obligations issued by or on
behalf of municipal or corporate issuers; 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; and 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). Although
the Fund is permitted to make taxable, temporary investments, there is no
current intention to do so.
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.
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 participation interests, or the
credit enhancers of either, to meet their obligations for the payment of
interest and principal when due. In addition, from time to time, the supply
of Municipal Securities acceptable for purchase by the Fund could become
limited.
The Fund may invest in Municipal Securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in
these Municipal Securities could involve an increased risk to the Fund
should any of these related projects or facilities experience financial
difficulties.
Obligations of issuers of Municipal Securities are subject to the provisions
of bankruptcy, insolvency, and other laws affecting the rights and remedies
of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing other constraints upon enforcement of such obligations or upon the
ability of states or municipalities to levy taxes. There is also the
possibility that, as a result of litigation or other conditions, the power
or ability of any issuer to pay, when due, the principal of and interest on
its municipal securities may be materially affected.
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 total assets to secure such borrowings. These investment
limitations cannot be changed without shareholder approval.
TRUST INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Trustees are responsible
for managing the Fund's business affairs and for exercising all the Trust's
powers except those reserved for the shareholders. An Executive Committee of
the Board of Trustees handles the Board's responsibilities between meetings
of the Board.
INVESTMENT ADVISER
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 and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to .50% of the
Fund's average daily net assets. The adviser has undertaken to reimburse the
Fund up to the amount of the advisory fee for operating expenses in excess
of limitations established by certain states. Also, the adviser may
voluntarily choose to waive a portion of its fee or reimburse other expenses
of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
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.
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. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF 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.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Investment Company Act
Rule 12b-1 (the "Plan"), 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. These services may include, but
are not limited to the following functions: providing office space,
equipment, telephone facilities, and various personnel including clerical,
supervisory, and computer 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
subject to the Plan and 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 Trustees of the Fund provided that for
any period the total amount of these fees shall not exceed an annual rate of
.20% of the average net asset value of shares subject to the Plan held
during the period by clients or customers of financial institutions. The
current annual rate of such fees is .20%. Any fees paid by the distributor
under the Plan, will be reimbursed from the assets of the Fund.
SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan, Federated
Securities Corp. from its own assets, may pay financial institutions
supplemental fees for the performance of substantial sales services,
distribution-related support services, or shareholder services.
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 Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares
Federated Services Company may choose voluntarily to waive a portion of its
fee.
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 outstanding. The
Fund cannot guarantee that its net asset value will always remain at $1.00
per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time),
and as of the close of trading (normally 4:00 p.m., Eastern time) on the New
York Stock Exchange, Monday through Friday, except on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $25,000 or more or additional investments of as little as
$500. Financial institutions may impose different minimum investment
requirements on their customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a
sales agreement with the distributor. Orders 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. Financial institutions may
charge additional fees for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by wire by calling the Fund before 3:00 p.m. Eastern
time to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. Eastern time in
order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; 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; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions
on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made
payable to Municipal Cash Series II. Please include an account number on the
check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member
and invested in Fund shares. Shareholders should contact their financial
institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions
will be made on days on which the Fund computes its net asset value.
Redemption requests must be received in proper form and can be made as
described below.
REDEEMING SHARES THROUGH A FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial
institution. Shares will be redeemed at the net asset value next determined
after Federated Shareholder Services Company receives the redemption
request. According to the shareholder's instructions, redemption proceeds
can be sent to the financial institution or to the shareholder by check or
by wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution
for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp. Proceeds from redemption requests received
before 12:00 noon (Eastern time) will be wired the same day to the
shareholder's account at a domestic commercial bank which is a member of the
Federal Reserve System, but will not include that day's dividend. Proceeds
from redemption requests received after that time include that day's
dividend but will be wired the following business day. Under limited
circumstances, arrangements may be made with the distributor for same-day
payment of proceeds, without that day's dividend, for redemption requests
received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares
purchased by check or through ACH will not be wired until that method of
payment has cleared. Proceeds from redemption requests on holidays when wire
transfers are restricted will be wired the following business day. Questions
about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the
telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name; the account name as
registered with the Fund; the account number; and the number of shares to be
redeemed or the dollar amount requested. All owners of the account must sign
the request exactly as the shares are registered. Normally, a check for the
proceeds is mailed within one business day, but in no event more than seven
days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting 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 their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
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.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders
to redeem their Fund shares. Shareholder accounts will continue to receive
the daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the
check writing program, for payment. However, checks should never be made
payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check
may not be written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged
to the account for this service.
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 ACH member. Shareholders may apply
for participation in this program through their financial institutions or
the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease
in dividends. The Fund will distribute in cash or additional shares any
realized net long-term capital gains at least once every 12 months.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Fund or Federated Shareholder
Services Company in writing. Monthly confirmations are sent to report all
transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account 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.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that 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 in matters affecting only a particular portfolio, only
shareholders of that portfolio are entitled to vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
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 Trust's other portfolios 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 certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for
corporations. The Fund may purchase, within the limits of its investment
policies, all types of municipal bonds, including private activity bonds.
The alternative minimum tax 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.
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.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, 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.
Because interest received by the Fund may not be exempt from all state and
local income taxes, shareholders may be required to pay state and local
taxes on dividends received from the Fund. Shareholders are urged to consult
their own tax advisers regarding the status of their accounts under state
and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield,
tax-equivalent yield, and total return.
Yield represents the annualized rate of income earned on an investment over
a seven-day period. It is the annualized dividends earned during the period
on an 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 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 is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that
would have to be earned to equal the Fund's tax-exempt yield, assuming a
specific tax rate.
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, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
MUNICIPAL CASH SERIES II
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS--99.3%
ALABAMA--1.9%
$ 855,000 Abbeville, AL, IDB Monthly VRDNs (Great Southern
Wood Preserving Co.)/(SouthTrust Bank of Alabama,
Birmingham LOC) $ 855,000
305,000 Muscle Shoals, AL, IDB Weekly VRDNs (Whitesell Manufacturing)/
(SouthTrust Bank of Alabama, Birmingham LOC) 305,000
Total 1,160,000
ARKANSAS--4.2%
2,500,000 Hope, AR , Solid Waste Disposal Revenue Bonds (Series 1994), 3.70%
CP (Temple-Inland Forest Products Corporation Project)/(Temple-
Inland, Inc. GTD), Mandatory Tender 7/12/1996 2,500,000
CALIFORNIA--10.5%
2,000,000 California HFA, Home Mortgage Revenue Bonds (1995 Series E),
3.50% TOBs (Bayerische Landesbank Girozentrale GIC), Mandatory
Tender 2/1/1997 2,000,000
2,000,000 California Statewide Communities Development Authority,
Certificates of Participation, 4.00% Bonds (Queen of Angels-
Hollywood Presbyterian Medical Center), 1/1/1997 2,000,000
2,300,000 Riverside County, CA IDA Weekly VRDNs (Golden West Homes)/
(Wells Fargo Bank, N.A. LOC) 2,300,000
Total 6,300,000
GEORGIA--3.8%
1,800,000 Franklin County, GA Industrial Building Authority, (Series 1995)
Weekly VRDNs (Bosal Industries, Inc.)/(ABN AMRO Bank N.V.,
Amsterdam LOC) 1,800,000
500,000 Savannah, GA EDA, (Series 1995A) Weekly VRDNs
(Home Depot, Inc.) 500,000
Total 2,300,000
</TABLE>
MUNICIPAL CASH SERIES II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS--CONTINUED
ILLINOIS--6.6%
$ 1,000,000 Chicago, IL, Gas Supply Revenue Bonds (1993 Series B), 3.85% TOBs
(Peoples Gas Light & Coke Company), Optional Tender 12/1/1996 $ 1,000,000
1,925,000 Illinois Development Finance Authority Weekly VRDNs (Olympic
Steel, Inc.)/(National City Bank, Cleveland, OH LOC) 1,925,000
1,000,000 Keeneyville, IL School District Number 20, (Series 1995A), 4.30%
TANs, 12/1/1996 1,000,000
Total 3,925,000
INDIANA--4.5%
1,010,000 Avilla, IN Weekly VRDNs (Group Dekko International)/(Bank One,
Indianapolis, IN LOC) 1,010,000
285,000 Avilla, IN, IDR Weekly VRDNs (Group Dekko International)/(Bank
One, Indianapolis, IN LOC) 285,000
1,415,000 Indiana Development Finance Authority, Economic Development
Revenue Refunding Bonds Weekly VRDNs (T. M. Morris
Manufacturing Co., Inc. Project)/(Bank One, Indianapolis, IN LOC) 1,415,000
Total 2,710,000
KENTUCKY--8.9%
3,300,000 Kentucky Pollution Abatement & Water Resource Finance Authority
Daily VRDNs (Toyota Motor Credit Corp.) 3,300,000
2,000,000 Scottsville, KY, 4.15% TOBs (Sumitomo Electric Wiring Systems)/
(Sumitomo Bank Ltd., Osaka LOC), Optional Tender 11/1/1996 2,000,000
Total 5,300,000
MARYLAND--3.2%
1,900,000 Maryland State Energy Financing Administration, Annual Tender
Solid Waste Disposal Revenue Refunding Bonds, 4.30% TOBs
(Nevamar Corp.)/(International Paper Co. GTD), Optional Tender
9/1/1996 1,900,000
MINNESOTA--1.7%
1,000,000 Byron, MN IDB Weekly VRDNs (Schmidt Printing)/(Norwest Bank
Minnesota, Minneapolis LOC) 1,000,000
</TABLE>
MUNICIPAL CASH SERIES II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS--CONTINUED
NEVADA--4.2%
$ 2,500,000 Director of the State of Nevada Weekly VRDNs (Smithey-Oasis Co.)/
(Mellon Bank NA, Pittsburgh LOC) $ 2,500,000
NEW HAMPSHIRE--11.2%
1,485,000 Dover, NH, 4.40% BANs, 7/26/1996 1,485,642
3,000,000 New Hampshire Business Finance Authority, PCR Bonds (Series A),
3.40% CP (New England Power Co.), Mandatory Tender 8/9/1996 3,000,000
2,200,000 New Hampshire Higher Educational & Health Facilities Authority
Weekly VRDNs (Colby Sawyer College Issue)/(Baybank, Burlington,
MA LOC) 2,200,000
Total 6,685,642
NEW JERSEY--2.9%
1,700,000 Bayonne, NJ, Temporary Notes, 3.88% BANs, 9/13/1996 1,701,792
NEW YORK--3.3%
2,000,000 Brentwood Union Free School District, NY, 4.375% TANs, 6/28/1996 2,000,389
NORTH CAROLINA--5.0%
1,500,000 New Hanover County, NC PCFA Weekly VRDNs (Efson, Inc.)/
(Branch Banking & Trust Co, Wilson LOC) 1,500,000
1,500,000 Wilson County, NC PCA, (Series 1994) Weekly VRDNs
(Granutec, Inc.)/(Branch Banking & Trust Co, Wilson LOC) 1,500,000
Total 3,000,000
NORTH DAKOTA--3.6%
2,175,000 Fargo, ND, IDRB (Series 1994) Weekly VRDNs (Pan-O-Gold Baking
Co. Project)/(Norwest Bank Minnesota, Minneapolis LOC) 2,175,000
PENNSYLVANIA--1.0%
600,000 Pennsylvania Education Development Authority Weekly VRDNs
(Respironics, Inc.)/(PNC Bank, N.A. LOC) 600,000
</TABLE>
MUNICIPAL CASH SERIES II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS--CONTINUED
SOUTH DAKOTA--1.7%
$ 1,000,000 South Dakota Housing Development Authority, Homeownership
Mortgage Bonds (Series 1995E), 4.05% TOBs, Mandatory Tender
10/24/1996 $ 1,000,000
TENNESSEE--2.5%
1,000,000 Cocke County, TN IDB Weekly VRDNs (GLI, Inc.)/(Great Lakes
Chemical Corp. GTD) 1,000,000
500,000 Paris, TN, IDB Weekly VRDNs (Plumley - Marugo Limited)/
(PNC Bank, Kentucky LOC) 500,000
Total 1,500,000
TEXAS--3.3%
2,000,000 Tyler, TX Health Facilities Development Corp., (Series 1993C), 4.15%
CP (East Texas Medical Center)/(Banque Paribas LOC), Mandatory
Tender 7/24/1996 2,000,000
UTAH--1.7%
1,010,000 Utah State HFA, (Series 1988A), 4.125% TOBs, Optional Tender
7/1/1996 1,010,000
VIRGINIA--2.5%
1,500,000 Richmond, VA Redevelopment & Housing Authority, (Series B-1)
Weekly VRDNs (Richmond, VA Red Tobacco Row)/(Westdeutsche
Landesbank Girozentrale LOC) 1,500,000
WASHINGTON--0.7%
430,000 Washington State Housing Finance Commission, (1995 Series 1A-S),
4.10% TOBs (FGIC INS), Mandatory Tender 6/1/1996 430,000
WISCONSIN--9.8%
2,000,000 Plymouth, WI IDB Weekly VRDNs (Great Lakes Cheese)/(Rabobank
Nederland, Utrecht LOC) 2,000,000
2,250,000 Portage, WI, IDRB (Series 1994) Weekly VRDNs (Portage Industries
Corporation Project)/(Bank One N.A., Milwaukee, WI LOC) 2,250,000
</TABLE>
MUNICIPAL CASH SERIES II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS--CONTINUED
WISCONSIN--CONTINUTED
$ 1,640,000 Wisconsin Housing & Economic Development Authority, (Series B),
4.00% TOBs (FSA INS)/(Meridian Bank, Reading, PA LIQ), Optional
Tender 9/1/1996 $ 1,640,000
Total 5,890,000
WYOMING--0.6%
375,000 Wyoming Community Development Authority, (Series 1987 E), 3.80%
TOBs (First National Bank of Chicago LIQ), Optional Tender
6/1/1996 375,000
TOTAL INVESTMENTS (AT AMORTIZED COST)(A) $ 59,462,823
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 79.17% of
the portfolio as calculated based upon total portfolio market value.
(a) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($59,888,230) at May 31, 1996.
MUNICIPAL CASH SERIES II
The following acronyms are used throughout this portfolio:
BANs -- Bond Anticipation Notes
CP -- Commercial Paper
EDA -- Economic Development Authority
FGIC -- Financial Guaranty Insurance Company
FSA -- Financial Security Assurance
GIC -- Guaranteed Investment Contract
GTD -- Guaranty
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Bond
IDR -- Industrial Development Revenue
IDRB -- Industrial Development Revenue Bond
INS -- Insured
LIQ -- Liquidity Agreement
LOC -- Letter of Credit
PCA -- Pollution Control Authority
PCR -- Pollution Control Revenue
PCFA -- Pollution Control Finance Authority
TANs -- Tax Anticipation Notes
TOBs -- Tender Option Bonds
VRDNs -- Variable Rate Demand Notes
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in securities, at amortized cost and
value $ 59,462,823
Cash 147,492
Income receivable 524,788
Receivable for shares sold 500
Total assets 60,135,603
LIABILITIES:
Payable for shares redeemed $ 130,002
Income distribution payable 90,810
Accrued expenses 26,561
Total liabilities 247,373
NET ASSETS for 59,888,230 shares outstanding $ 59,888,230
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$59,888,230 O 59,888,230 shares 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, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 2,985,551
EXPENSES:
Investment advisory fee $ 376,627
Administrative personnel and services fee 125,000
Custodian fees 19,227
Transfer and dividend disbursing agent fees and expenses 27,316
Directors'/Trustees' fees 5,967
Auditing fees 13,111
Legal fees 2,793
Portfolio accounting fees 40,930
Distribution services fee 150,651
Share registration costs 37,524
Printing and postage 16,919
Insurance premiums 4,223
Miscellaneous 10,233
Total expenses 830,521
Waivers --
Waiver of investment advisory fee (231,982)
Net expenses 598,539
Net investment income $ 2,387,012
</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,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS--
Net investment income $ 2,387,012 $ 2,728,174
DISTRIBUTIONS TO SHAREHOLDERS--
Distributions from net investment income (2,387,012) (2,728,174)
SHARE TRANSACTIONS--
Proceeds from sale of shares 410,205,449 627,259,519
Net asset value of shares issued to shareholders in payment
of
distributions declared 1,773,394 2,143,218
Cost of shares redeemed (419,701,847) (693,561,189)
Change in net assets resulting from share transactions (7,723,004) (64,158,452)
Change in net assets (7,723,004)
(64,158,452)
NET ASSETS:
Beginning of period 67,611,234 131,769,686
End of period $ 59,888,230 $ 67,611,234
</TABLE>
(See Notes which are an integral part of the Financial Statements)
MUNICIPAL CASH SERIES II
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
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. The financial
statements included herein are only those of Municipal Cash Series II (the
"Fund"), a non-diversified portfolio. The financial statements of the other
portfolios are presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
The investment objective of the Fund is current income exempt from federal
regular income tax consistent with stability of principal and liquidity.
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.
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.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
MUNICIPAL CASH SERIES II
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
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, 1996, capital paid-in aggregated $59,888,230.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
<S> <C> <C>
Shares sold 410,205,449 627,259,519
Shares issued to shareholders in payment of distributions declared 1,773,394 2,143,218
Shares redeemed (419,701,847) (693,561,189)
Net change resulting from share transactions (7,723,004) (64,158,452)
</TABLE>
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 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive any portion of its fee. The Adviser
can modify or terminate this voluntary waiver at any time at its sole
discretion.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors for the period. The administrative fee received during
the period of the Administrative Services Agreement shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will reimburse Federated Securities Corp.("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses up to 0.20% of the average daily net assets
of the Fund shares, annually, to reimburse FSC.
MUNICIPAL CASH SERIES II
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES -- Organizational and start-up administrative
service expenses of $18,628 and $82,502, respectively, were initially borne
by the Adviser. The Fund has agreed to reimburse the Adviser at an annual
rate of 0.005% of average daily net assets and 0.01% of average daily net
assets for organizational and start-up administrative expenses,
respectively, until expenses initially borne by the Adviser are fully
reimbursed or the expiration of five years after the effective date,
whichever occurs earlier. For the period ended May 31, 1996, the Fund paid
$0 and $5,078, respectively, pursuant to this agreement.
INTERFUND TRANSACTIONS -- During the period ended May 31, 1996, the Fund
engaged in purchase and sale transactions with funds that have a common
investment adviser (or affiliated investment advisers), common
Directors/Trustees, and/or common Officers. These purchase and sale
transactions were made at current market value pursuant to Rule 17a-7 under
the Act amounting to $234,065,000 and $235,335,000, respectively.
GENERAL -- Certain of the Officers and Trustees of the Trust 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, 1996, the related
statement of operations for the year then ended, the statements of changes
in net assets for the years ended May 31, 1996, and 1995, and the financial
highlights for the periods presented. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of the
securities owned as of May 31, 1996, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed
other auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Municipal Cash
Series II as of May 31, 1996, the results of its operations, the changes in
its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
Pittsburgh, Pennsylvania
July 10, 1996
ADDRESSES
Cash Trust Series II
Municipal Cash Series II
Federated Investors Tower
Pittsburgh, PA 15222-3779
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, PA 15222-3779
INVESTMENT ADVISER
Federated Advisers
Federated Investors Tower
Pittsburgh, PA 15222-3779
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8600
Boston, MA 02266-8600
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, PA 15222-5401
MUNICIPAL CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
PROSPECTUS
A Portfolio of
Cash Trust Series II,
An Open-End Management
Investment Company
Prospectus dated July 31, 1996
[Graphic]
Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Securities Corp. is the distributor of the fund
and is a subsidiary of Federated Investors.
[Graphic]
Cusip 147552103
0111205A (7/96)
TREASURY CASH SERIES II
(A PORTFOLIO OF CASH TRUST SERIES II)
PROSPECTUS
The shares of Treasury Cash Series II (the "Fund") offered by this
prospectus represent interests in a diversified portfolio of Cash Trust
Series II (the "Trust"), an open-end management investment company (a mutual
fund). The Fund invests in short-term U.S. Treasury securities to provide
current income consistent with stability of principal and liquidity.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF ANY
BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK AND ARE NOT INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL. 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.
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,
1996, with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have
received your prospectus electronically, free of charge by calling
1-800-341-7400. To obtain other information, or make inquiries about the
Fund, contact your financial institution. The Statement of Additional
Information, material incorporated by reference into this document, and
other information regarding the Fund is maintained electronically with the
SEC at Internet Web site (http://www.sec.gov).
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, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary of Fund Expenses 1
Financial Highlights 2
General Information 3
Investment Information 3
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Investment Limitations 4
Trust Information 5
Management of the Fund 5
Distribution of Shares 5
Administration of the Fund 7
Net Asset Value 7
How to Purchase Shares 8
Special Purchase Features 8
How to Redeem Shares 9
Special Redemption Features 10
Account and Share Information 10
Tax Information 11
Federal Income Tax 11
State and Local Taxes 11
Performance Information 12
Financial Statements 13
Independent Auditors' Report 21
Addresses 22
</TABLE>
TREASURY CASH SERIES II
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering price) None
Maximum Sales Charge 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
</TABLE>
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fee 0.50%
12b-1 Fee(1) 0.19%
Total Other Expenses 0.17%
Shareholder Services Fee None
Total Operating Expenses(2) 0.86%
</TABLE>
(1) The maximum 12b-1 fee is 0.20%.
(2) The total operating expenses were 0.87% absent the voluntary waiver of a
portion of the 12b-1 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 "Trust 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 $27 $48 $106
</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 Report of Deloitte & Touche LLP, Independent
Auditors, on page 21.
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995 1994 1993 1992 1991(a)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05 0.04 0.02 0.03 0.04 0.02
LESS DISTRIBUTIONS
Distributions from net investment
income (0.05) (0.04) (0.02) (0.03) (0.04) (0.02)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN(b) 4.97% 4.47% 2.47% 2.64% 4.41% 2.06%
RATIOS TO AVERAGE NET ASSETS
Expenses 0.86% 0.88% 0.89% 0.78% 0.73% 0.47%*
Net investment income 4.83% 4.40% 2.42% 2.55% 4.34% 5.71%*
Expense waiver/
reimbursement(c) 0.01% 0.00% 0.05% 0.19% 0.57% 0.37%*
SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted) $402,378 $243,651 $229,882 $310,648 $104,371 $70,798
</TABLE>
* Computed on an annualized basis.
(a) Reflects operations for the period from February 9, 1991 (date of
initial public investment) to May 31, 1991.
(b) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(c) 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)
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 representing interests
in separate portfolios of securities. 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
investing only in short-term U.S. Treasury securities. A minimum initial
investment of $25,000 is required except for retirement plans.
The Fund attempts to stabilize the value of a share at $1.00. 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. This investment objective cannot
be changed without shareholder approval. While there is no assurance that
the Fund will achieve its investment objective, it endeavors to do so by
complying with the diversification and other requirements of Rule 2a-7 under
the Investment Company Act of 1940 which regulates money market mutual funds
and by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing only in a portfolio
of U.S. Treasury securities maturing in 13 months or less. The average
maturity of the securities in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise,
the investment policies may be changed by the Board of Trustees ("Trustees")
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
The Fund will limit its investments to investments which, if owned directly,
pay interest exempt from state personal income tax. Therefore, dividends
paid by the Fund may be exempt from state personal income tax.
ACCEPTABLE INVESTMENTS
The Fund invests only in U.S. Treasury securities, which are fully
guaranteed as to principal and interest by the United States.
REPURCHASE AGREEMENTS
Certain securities in which the Fund invests may be purchased pursuant to
repurchase agreements. Repurchase agreements are arrangements in which
banks, broker/dealers, and other recognized financial institutions sell
securities 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 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 securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time. The seller's failure
to complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous. 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. Accordingly, the Fund may pay
more or less than the market value of the securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
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 total assets to secure such borrowings.
The above investment limitations cannot be changed without shareholder
approval. The following limitation, however, may 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.
TRUST INFORMATION
MANAGEMENT OF THE FUND
BOARD OF TRUSTEES
The Trust is managed by a Board of Trustees. The Trustees are responsible
for managing the Fund's business affairs and for exercising all the Trust's
powers except those reserved for the shareholders. An Executive Committee of
the Board of Trustees handles the Board's responsibilities between meetings
of the Board.
INVESTMENT ADVISER
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 and sale of portfolio instruments.
ADVISORY FEES
The adviser receives an annual investment advisory fee equal to .50% of the
Fund's average daily net assets. The adviser has undertaken to reimburse the
Fund up to the amount of the advisory fee for operating expenses in excess
of limitations established by certain states. Also, the adviser may
voluntarily choose to waive a portion of its fee or reimburse other expenses
of the Fund, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
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.
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. With over $80 billion invested across more
than 250 funds under management and/or administration by its subsidiaries,
as of December 31, 1995, Federated Investors is one of the largest mutual
fund investment managers in the United States. With more than 1,800
employees, Federated continues to be led by the management who founded the
company in 1955. Federated funds are presently at work in and through 4,000
financial institutions nationwide. More than 100,000 investment
professionals have selected Federated funds for their clients.
Both the Trust and the adviser have adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and its portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of shareholders ahead
of the employees' own interests. Among other things, the codes: require
preclearance and periodic reporting of personal securities transactions;
prohibit personal transactions in securities being purchased or sold, or
being considered for purchase or sale, by the Fund; prohibit purchasing
securities in initial public offerings; and prohibit taking profits on
securities held for less than sixty days. Violations of the codes are
subject to review by the Trustees, and could result in severe penalties.
DISTRIBUTION OF 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.
State securities laws may require certain financial institutions such as
depository institutions to register as dealers.
DISTRIBUTION PLAN
Under a distribution plan adopted in accordance with Investment Company
Act Rule 12b-1 (the "Plan"), 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. These services may include, but are not
limited to the following functions: providing office space, equipment,
telephone facilities, and various personnel including clerical, supervisory,
and computer 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
subject to the Plan and 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 Trustees of the Fund provided that for any period
the total amount of these fees shall not exceed an annual rate of .20% of
the average net asset value of shares subject to the Plan held during the
period by clients or customers of financial institutions. The current annual
rate of such fees is .20%. Any fees paid by the distributor under the Plan,
will be reimbursed from the assets of the Fund.
SUPPLEMENTAL PAYMENTS TO
FINANCIAL INSTITUTIONS
In addition to payments made pursuant to the Distribution Plan, Federated
Securities Corp., from its own assets, may pay financial institutions
supplemental fees for the performance of substantial sales services,
distribution-related support services, or shareholder services.
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 Services Company, a subsidiary of Federated Investors, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Fund at an annual rate which
relates to the average aggregate daily net assets of all funds advised by
affiliates of Federated Investors as specified below:
<TABLE>
<CAPTION>
AVERAGE AGGREGATE
MAXIMUM FEE DAILY NET ASSETS
<C> <S>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of
$750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$125,000 per portfolio and $30,000 per each additional class of shares.
Federated Services Company may choose voluntarily to waive a portion of its
fee.
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 cannot guarantee that its net asset value will always remain at
$1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time),
and as of the close of trading (normally 4:00 p.m., Eastern time) on the New
York Stock Exchange, Monday through Friday, except on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
HOW TO PURCHASE SHARES
Shares are sold at their net asset value, without a sales charge, next
determined after an order is received, on days which the New York Stock
Exchange is open for business. Shares may be purchased as described below,
either through a financial institution (such as a bank or broker/dealer) or
by wire or by check directly from the Fund, with a minimum initial
investment of $25,000 or more or additional investments of as little as
$500. The minimum initial investment for retirement plans is only $1,000,
and subsequent investments may be made in amounts of at least $50. Financial
institutions may impose different minimum investment requirements on their
customers.
In connection with any sale, Federated Securities Corp. may from time to
time offer certain items of nominal value to any shareholder or investor.
The Fund reserves the right to reject any purchase request. An account must
be established at a financial institution or by completing, signing, and
returning the new account form available from the Fund before shares can be
purchased.
PURCHASING SHARES THROUGH A
FINANCIAL INSTITUTION
Investors may purchase shares through a financial institution which has a
sales agreement with the distributor. Orders 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. Financial institutions may
charge additional fees for their services.
PURCHASING SHARES BY WIRE
Shares may be purchased by wire by calling the Fund before 3:00 p.m. Eastern
time to place an order. The order is considered received immediately.
Payment by federal funds must be received before 3:00 p.m. Eastern time in
order to begin earning dividends that same day. Federal funds should be
wired as follows: Federated Shareholder Services Company, c/o State Street
Bank and Trust Company, Boston, MA; 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; and ABA Number 011000028. Shares cannot be
purchased by wire on holidays when wire transfers are restricted. Questions
on wire purchases should be directed to your shareholder services
representative at the telephone number listed on your account statement.
PURCHASING SHARES BY CHECK
Shares may be purchased by sending a check to Federated Shareholder Services
Company, P.O. Box 8600, Boston, MA 02266-8600. The check should be made
payable to Treasury Cash Series II. Please include an account number on the
check. Orders by mail are considered received when payment by check is
converted into federal funds (normally the business day after the check is
received), and shares begin earning dividends the next day.
SPECIAL PURCHASE FEATURES
SYSTEMATIC INVESTMENT PROGRAM
A minimum of $100 can be automatically withdrawn periodically from the
shareholder's checking account at an Automated Clearing House ("ACH") member
and invested in Fund shares. Shareholders should contact their financial
institution or the Fund to participate in this program.
HOW TO REDEEM SHARES
Shares are redeemed at their net asset value next determined after Federated
Shareholder Services Company receives the redemption request. Redemptions
will be made on days on which the Fund computes its net asset value.
Redemption requests must be received in proper form and can be made as
described below.
REDEEMING SHARES THROUGH A
FINANCIAL INSTITUTION
Shares may be redeemed by contacting the shareholder's financial
institution. Shares will be redeemed at the net asset value next determined
after Federated Shareholder Services Company receives the redemption
request. According to the shareholder's instructions, redemption proceeds
can be sent to the financial institution or to the shareholder by check or
by wire. The financial institution is responsible for promptly submitting
redemption requests and providing proper written redemption instructions.
Customary fees and commissions may be charged by the financial institution
for this service.
REDEEMING SHARES BY TELEPHONE
Redemptions in any amount may be made by calling the Fund provided the Fund
has a properly completed authorization form. These forms can be obtained
from Federated Securities Corp. Proceeds from redemption requests received
before 12:00 noon (Eastern time) will be wired the same day to the
shareholder's account at a domestic commercial bank which is a member of the
Federal Reserve System, but will not include that day's dividend. Proceeds
from redemption requests received after that time include that day's
dividend but will be wired the following business day. Under limited
circumstances, arrangements may be made with the distributor for same-day
payment of proceeds, without that day's dividend, for redemption requests
received before 2:00 p.m. (Eastern time). Proceeds from redeemed shares
purchased by check or through ACH will not be wired until that method of
payment has cleared. Proceeds from redemption requests on holidays when wire
transfers are restricted will be wired the following business day. Questions
about telephone redemptions on days when wire transfers are restricted
should be directed to your shareholder services representative at the
telephone number listed on your account statement.
Telephone instructions may be recorded and if reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If this occurs, "Redeeming
Shares By Mail" should be considered. If at any time the Fund shall
determine it necessary to terminate or modify the telephone redemption
privilege, shareholders would be promptly notified.
REDEEMING SHARES BY MAIL
Shares may be redeemed in any amount by mailing a written request to:
Federated Shareholder Services Company, P.O. Box 8600, Boston, MA
02266-8600. If share certificates have been issued, they should be sent
unendorsed with the written request by registered or certified mail to the
address noted above.
The written request should state: the Fund name; the account name as
registered with the Fund; the account number; and the number of shares to be
redeemed or the dollar amount requested. All owners of the account must sign
the request exactly as the shares are registered. Normally, a check for the
proceeds is mailed within one business day, but in no event more than seven
days, after the receipt of a proper written redemption request. Dividends
are paid up to and including the day that a redemption request is processed.
Shareholders requesting 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 their signatures guaranteed by a
commercial or savings bank, trust company or savings association whose
deposits are insured by an organization which is administered by the Federal
Deposit Insurance Corporation; a member firm of a domestic stock exchange;
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.
SPECIAL REDEMPTION FEATURES
CHECK WRITING
Upon request, a checking account will be established to allow shareholders
to redeem their Fund shares. Shareholder accounts will continue to receive
the daily dividend declared on the shares to be redeemed until the check is
presented to UMB Bank, N.A., the bank responsible for administering the
check writing program, for payment. However, checks should never be made
payable or sent to UMB Bank, N.A. or the Fund to redeem shares, and a check
may not be written to close an account.
DEBIT CARD
Upon request, a debit account will be established. This account allows
shareholders to redeem shares by using a debit card. A fee will be charged
to the account for this service.
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 ACH member. Shareholders may apply
for participation in this program through their financial institutions or
the Fund.
ACCOUNT AND SHARE INFORMATION
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund unless cash
payments are requested by writing to the Fund.
CAPITAL GAINS
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease
in dividends. The Fund will distribute in cash or additional shares any
realized net long-term capital gains at least once every 12 months.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Fund or Federated Shareholder
Services Company in writing. Monthly confirmations are sent to report all
transactions as well as dividends paid during the month.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account, except accounts maintained by 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.
VOTING RIGHTS
Each share of the Trust owned by a shareholder gives that 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 in matters affecting only a particular portfolio, only
shareholders of that portfolio are entitled to vote. 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 election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special
meeting. A special meeting shall be called by the Trustees upon the written
request of shareholders owning at least 10% of the outstanding shares of the
Trust.
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 Trust's other portfolios 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 received. This applies whether
dividends and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
In the opinion of Houston, Houston, & Donnelly, counsel to the Trust, 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.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time, the Fund advertises its yield, effective yield, and total
return.
Yield represents the annualized rate of income earned on an investment over
a seven-day period. It is the annualized dividends earned during the period
on an 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 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.
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, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
TREASURY CASH SERIES II
PORTFOLIO OF INVESTMENTS
MAY 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM U.S. TREASURY OBLIGATIONS -- 22.4%
(a)U. S. TREASURY BILLS -- 10.3%
$ 42,500,000 4.62%-5.32%, 8/8/1996-4/3/1997 $ 41,408,277
U.S. TREASURY NOTES -- 12.1%
48,500,000 6.13%-8.00%, 7/31/1996-3/31/1997 48,893,374
TOTAL SHORT-TERM U.S. TREASURY OBLIGATIONS 90,301,651
(b) REPURCHASE AGREEMENTS -- 78.0%
28,700,000 Barclays de Zoete Wedd Securities, Inc., 5.340%, dated 5/31/1996,
due 6/3/1996 28,700,000
15,000,000 Bear, Stearns and Co., Inc., 5.330%, dated 5/31/1996, due 6/3/1996 15,000,000
15,000,000 BOT Securities, 5.350%, dated 5/31/1996, due 6/3/1996 15,000,000
15,000,000 BT Securities Corporation, 5.340%, dated 5/31/1996, due 6/3/1996 15,000,000
15,000,000 CIBC Wood Gundy Securities Corp., 5.320%, dated 5/31/1996,
due 6/3/1996 15,000,000
15,000,000 Chase Securities, Inc., 5.300%, dated 5/31/1996, due 6/3/1996 15,000,000
15,000,000 Daiwa Securities America, Inc., 5.320%, dated 5/31/1996, due
6/3/1996 15,000,000
15,000,000 Deutsche Bank Government Securities, Inc., 5.320%, dated 5/31/1996,
due 6/3/1996 15,000,000
15,000,000 Donaldson, Lufkin & Jenrette Securities Corp., 5.280%, dated
5/31/1996, due 6/3/1996 15,000,000
15,000,000 Dresdner Securities (USA), Inc., 5.320%, dated 5/31/1996,
due 6/3/1996 15,000,000
15,000,000 First Union Capital Markets Corp., 5.350%, dated 5/31/1996,
due 6/3/1996 15,000,000
15,000,000 Harris Government Securities, Inc., 5.340%, dated 5/31/1996,
due 6/3/1996 15,000,000
60,000,000 J.P. Morgan Securities, Inc., 5.330%, dated 5/31/1996, due 6/3/1996 60,000,000
15,000,000 Prudential Securities, Inc., 5.350%, dated 5/31/1996, due 6/3/1996 15,000,000
</TABLE>
TREASURY CASH SERIES II
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
(b) REPURCHASE AGREEMENTS -- CONTINUED
$ 15,000,000 Sanwa Securities (USA) Co., L.P., 5.330%, dated 5/31/1996,
due 6/3/1996 $ 15,000,000
15,000,000 Swiss Bank Corp., New York, 5.330%, dated 5/31/1996, due 6/3/1996 15,000,000
15,000,000 UBS Securities, Inc., 5.310%, dated 5/31/1996, due 6/3/1996 15,000,000
TOTAL REPURCHASE AGREEMENTS 313,700,000
TOTAL INVESTMENTS, AT AMORTIZED COST(c) $ 404,001,651
</TABLE>
(a) The issue shows the rate of discount at the time of purchase.
(b) The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
(c) Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($402,378,106) at May 31, 1996.
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1996
<TABLE>
<S> <C> <C>
ASSETS:
Investments in repurchase agreements $ 313,700,000
Investments in securities 90,301,651
Total investments in securities, at amortized cost and value $ 404,001,651
Cash 158,707
Income receivable 650,396
Receivable for investments sold 2,030,310
Receivable for shares sold 56,071
Total assets 406,897,135
LIABILITIES:
Payable for investments purchased 3,985,068
Payable for shares redeemed 24,001
Income distribution payable 364,838
Accrued expenses 145,122
Total liabilities 4,519,029
NET ASSETS for 402,378,106 shares outstanding $ 402,378,106
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
$402,378,106 O 402,378,106 shares 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, 1996
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 19,814,176
EXPENSES:
Investment advisory fee $ 1,742,105
Administrative personnel and services fee 263,561
Custodian fees 101,744
Transfer and dividend disbursing agent fees and expenses 41,364
Directors'/Trustees' fees 11,784
Auditing fees 13,533
Legal fees 989
Portfolio accounting fees 86,404
Distribution services fee 696,842
Share registration costs 31,249
Printing and postage 15,981
Insurance premiums 6,942
Taxes 1,062
Miscellaneous 9,861
Total expenses 3,023,421
Waivers --
Waiver of distribution services fee (24,390)
Net expenses 2,999,031
Net investment income $ 16,815,145
</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,
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS --
Net investment income $ 16,815,145 $ 10,341,623
DISTRIBUTIONS TO SHAREHOLDERS --
Distributions from net investment income (16,815,145) (10,341,623)
SHARE TRANSACTIONS --
Proceeds from sale of shares 885,379,520 677,897,145
Net asset value of shares issued to shareholders in
payment of
distributions declared 12,675,598 7,311,204
Cost of shares redeemed (739,327,594) (671,440,119)
Change in net assets resulting from share transactions 158,727,524 13,768,230
Change in net assets 158,727,524 13,768,230
NET ASSETS:
Beginning of period 243,650,582 229,882,352
End of period $ 402,378,106 $ 243,650,582
</TABLE>
(See Notes which are an integral part of the Financial Statements)
TREASURY CASH SERIES II
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1996
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. The financial
statements included herein are only those of Treasury Cash Series II (the
"Fund"), a diversified portfolio. The financial statements of the other
portfolio is presented separately. The assets of each portfolio are
segregated and a shareholder's interest is limited to the portfolio in which
shares are held.
The investment objective of the Fund is current income consistent with
stability of principal and liquidity.
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.
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.
REPURCHASE AGREEMENTS -- It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the Federal
Reserve Book Entry System, or to have segregated within the custodian bank's
vault, all securities held as collateral under repurchase agreement
transactions. Additionally, procedures have been established by the Fund to
monitor, on a daily basis, the market value of each repurchase agreement's
collateral to ensure that the value of collateral at least equals the
repurchase price to be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS -- Interest income and
expenses are accrued daily. Bond premium and discount, if applicable, are
amortized as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES -- It is the Fund's policy to comply with the provisions of
the Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
TREASURY CASH SERIES II
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS -- The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets, liabilities,
expenses and revenues reported in the financial statements. Actual results
could differ from those estimated.
OTHER -- Investment transactions are accounted for on the trade date.
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, 1996, capital paid-in aggregated $402,378,106. Transactions in
shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
1996 1995
<S> <C> <C>
Shares sold 885,379,520 677,897,145
Shares issued to shareholders in payment of distributions declared 12,675,598 7,311,204
Shares redeemed (739,327,594) (671,440,119)
Net change resulting from share transactions 158,727,524 13,768,230
</TABLE>
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 0.50% of the Fund's average daily net assets.
ADMINISTRATIVE FEE -- Federated Services Company ("FServ"), under the
Administrative Services Agreement, provides the Fund with administrative
personnel and services. The fee paid to FServ is based on the level of
average aggregate daily net assets of all funds advised by subsidiaries of
Federated Investors 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.
TREASURY CASH SERIES II
DISTRIBUTION SERVICES FEE -- The Fund has adopted a Distribution Plan (the
"Plan") pursuant to Rule 12b-1 under the Act. Under the terms of the Plan,
the Fund will reimburse Federated Securities Corp. ("FSC"), the principal
distributor, from the net assets of the Fund to finance activities intended
to result in the sale of the Fund's shares. The Plan provides that the Fund
may incur distribution expenses up to 0.20% of the average daily net assets
of the Fund shares, annually, to reimburse FSC. The distributor may
voluntarily choose to waive any portion of its fee. The distributor can
modify or terminate this voluntary waiver at any time at its sole
discretion.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES AND EXPENSES -- FServ, through
its subsidiary, Federated Shareholder Services Company ("FSSC") serves as
transfer and dividend disbursing agent for the Fund. The fee paid to FSSC is
based on the size, type, and number of accounts and transactions made by
shareholders.
PORTFOLIO ACCOUNTING FEES -- FServ maintains the Fund's accounting records
for which it receives a fee. The fee is based on the level of the Fund's
average daily net assets for the period, plus out-of-pocket expenses.
GENERAL -- Certain of the Officers and Trustees of the Trust 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, 1996, the related
statements of operations for the year then ended, the statements of changes
in net assets for the years ended May 31, 1996 and 1995 and the financial
highlights for the periods presented. These financial statement 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, 1996 by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Treasury Cash
Series II as of May 31, 1996, the results of its operations, the changes in
its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 10, 1996
ADDRESSES
Cash Trust Series II
Treasury Cash Series II
Federated Investors Tower
Pittsburgh, PA 15222-3779
Distributor Transfer Agent and Dividend
Federated Securities Corp. Disbursing Agent
Federated Investors Tower Federated Shareholder
Pittsburgh, PA 15222-3779 Services Company
P.O. Box 8600
Boston, MA 02266-8600
Investment Adviser Independent Public Accountants
Federated Advisers Deloitte & Touche LLP
Federated Investors Tower 2500 One PPG Place
Pittsburgh, PA 15222-3779 Pittsburgh, PA 15222-5401
Custodian
State Street Bank and Trust Company
P.O. Box 8600
Boston, MA 02266-8600
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
Prospectus dated July 31, 1996
<Graphic>
Cusip 147552301
0111203A (7/96)
