ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report for Municipal Cash Series II, a
portfolio of Cash Trust Series II, which covers the 12-month period from June 1,
1998 through May 31, 1999. The report begins with an investment review by the
fund's portfolio manager, followed by a complete listing of the fund's holdings
in tax-free securities and its financial statements.
Designed for tax-sensitive investors, Municipal Cash Series II helps you pursue
daily tax-free income 1 on your ready cash while offering you the additional
advantages of daily liquidity and stability of principal.2 At the end of the
reporting period, the fund was invested in high quality, short-term securities
issued by municipalities across the United States.
During the reporting period, the fund paid a total of $0.03 in tax-free
dividends per share, and on May 31, 1999, the fund's net assets totaled $257.4
million.
As always, we thank you for choosing Municipal Cash Series II. Please contact
your investment representative if you have any questions about your investment.
We look forward to keeping you up to date on your investment.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
1 Income may be subject to the federal alternative minimum tax and state and
local taxes.
2 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Investment Review
WHAT ARE YOUR COMMENTS ON THE ECONOMY AND THE INTEREST RATE ENVIRONMENT DURING
THE REPORTING PERIOD?
The economy remained robust over the reporting period, showing continued
strength into the first quarter of 1999. At the same time, overall inflationary
pressure remained absent in spite of impressive performance from the U.S.
economy and historically low unemployment. The tight labor market and the
potential for future inflation continued to concern of the Federal Reserve Board
("the Fed") throughout the period. The Fed adopted a neutral bias in monetary
policy at its November 1998 meeting and maintained the policy until recently.
The Fed changed to a tightening bias in the May 1999 meeting citing the strong
U.S. economy in conjunction with record employment levels, improvements in
foreign economic prospects, and the rebound of U.S. financial markets.
In addition to economic fundamentals, short-term municipal securities were
strongly influenced by technical factors over the reporting period, notably
calendar year end and income tax payment season. Variable rate demand notes
("VRDNs"), which comprised more than 50% of the fund's assets, started the
reporting period in the 3.50% range. Rates then gradually moved higher in
December of 1998 to the 4.00% level as seasonal supply and demand imbalances
occurred. Yields declined in January, due to coupon reinvestment and the easing
of year end selling pressures. Yields averaged slightly over 2.80% during
February and March before rising to the 3.50% range in April due to traditional
tax season selling pressures. Over the reporting period, VRDN yields averaged
roughly 65% of taxable rates, making them attractive for investors in the
highest federal tax brackets.
The overall tone of the short-term municipal market was positive. Municipalities
across the country have benefited from a strong economy. This fact, coupled with
lower borrowing costs from low long term rates, reduced short-term issuance. In
fact, annual municipal note issuance was at its lowest level in the last decade.
Lack of supply and heavy demand have kept short-term municipal securities,
relative to their taxable counterparts, very expensive.
WHAT WERE YOUR STRATEGIES FOR THE FUND DURING THE REPORTING PERIOD?
The fund's average maturity at the beginning of the reporting period was
approximately 40 days. The fund remained in a 40-45 day average maturity range
over the reporting period, a neutral stance, and moved within that range
according to relative value opportunities. We continued to emphasize a barbelled
structure for the portfolio, combining a significant position in 7-day VRDNs
with purchases of longer-term securities with maturities between 6-12 months.
Once an average maturity range is targeted, we seek to maximize portfolio
performance through ongoing relative value analysis. Relative value analysis
includes the comparison of the richness or cheapness of municipal securities to
one another, as well as municipal securities to taxable instruments, such as
Treasury securities. This portfolio structure has continued to pursue a
competitive yield over time.
AS WE APPROACH MID-YEAR, WHAT IS YOUR OUTLOOK GOING FORWARD?
The Fed, certain to be troubled by persistent above-trend growth in an economy
where wage inflation is a primary concern, will likely maintain a tightening
bias. In the near term, the short-term municipal market will reflect this
fundamental factor as well as the typical technical factors. These supply and
demand imbalances could very well present attractive investment opportunities
for the fund. We will continue to watch, with great interest, market
developments in order to best serve our municipal clients.
Portfolio of Investments
MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-99.9% 1
ALABAMA-5.1%
$ 620,000 Abbeville, AL, IDB Monthly
VRDNs (Great Southern Wood
Preserving Co.)/
(SouthTrust Bank of
Alabama, Birmingham LOC) $ 620,000
3,150,000 Birmingham, AL IDA Weekly
VRDNs (Mrs. Strattons
Salads, Inc.)/(SouthTrust
Bank of Alabama,
Birmingham LOC) 3,150,000
3,000,000 Birmingham, AL IDA,
(Series 1997) Weekly VRDNs
(Millcraft, AL, Inc.)/
(Regions Bank, Alabama
LOC) 3,000,000
925,000 Huntsville, AL IDB Weekly VRDNs (Giles & Kendall,
Inc.)/(SouthTrust Bank of
Alabama, Birmingham LOC) 925,000
5,500,000 Selma, AL IDB, Solid Waste
Disposal Revenue Bonds
(Series A), 3.75% TOBs
(International Paper Co.),
Optional Tender 3/1/2000 5,500,000
TOTAL 13,195,000
ARIZONA-3.8%
2,250,000 Eloy, AZ IDA, (Series 1996)
Weekly VRDNs (The Marley
Cooling Tower Co.)/
(First Union National
Bank, Charlotte, NC LOC) 2,250,000
2,929,000 Pima County, AZ IDA, Single
Family Mortgage (PA-159) Weekly VRDNs (GNMA COL)/(Merrill Lynch
Capital Services, Inc.
LIQ) 2,929,000
1,000,000 Pinal County, AZ IDA, PCR
Bonds Daily VRDNs (Magma
Copper Co.)/(National
Westminster Bank, PLC,
London LOC) 1,000,000
250,000 Tolleson, AZ Municipal
Finance Corp., Revenue
Refunding Bonds (Series of
1998) Weekly VRDNs
(Citizens Utilities Co.) 250,000
3,400,000 Yuma County, AZ Airport
Authority, Inc., (Series
1997A) Weekly VRDNs
(Bank One, Arizona N.A.
LOC) 3,400,000
TOTAL 9,829,000
COLORADO-3.9%
2,475,000 Colorado HFA, (Series
1996) Weekly VRDNs (Neppl-
Springs
Fabrication)/(U.S. Bank,
N.A., Minneapolis LOC) 2,475,000
2,915,000 Colorado HFA, (Series
1998) Weekly VRDNs (W & R Investment Co. LLP and K & W Metal
Fabricators,
Inc.)/(UMB Bank, N.A. LOC) 2,915,000
2,660,000 2 Colorado HFA, MERLOTS
(Series C), 3.40% TOBs
(First Union National
Bank, Charlotte, NC LIQ),
Optional Tender 7/31/1999 2,660,000
2,000,000 Denver (City & County), CO,
Airport System Subordinate
Revenue Bonds
(Series 1997A), 3.40% CP
(Bayerische Landesbank
Girozentrale LOC),
Mandatory Tender 6/18/1999 2,000,000
TOTAL 10,050,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
FLORIDA-1.3%
$ 2,250,000 Escambia County, FL HFA, PT
1017 Weekly VRDNs (GNMA
COL)/(Merrill Lynch
Capital Services, Inc.
LIQ) $ 2,250,000
1,000,000 Orange County, FL HFA,
(Series 1998 D) Weekly
VRDNs (Falcon Trace
Apartments)/(Amsouth Bank
N.A., Birmingham LOC) 1,000,000
TOTAL 3,250,000
GEORGIA-3.3%
2,100,000 Columbus, GA Housing
Authority Weekly VRDNs
(Ralston Towers)/(Columbus
Bank and Trust Co., GA LOC) 2,100,000
2,000,000 Crisp County, GA
Development Authority,
(Series B), 4.20% TOBs
(Masonite Corp.)/
(International Paper Co.
GTD), Optional Tender
9/1/1999 2,000,000
3,300,000 Marietta, GA Housing
Authority, Multifamily
Housing Revenue Bonds
(Series 1995) Weekly VRDNs
(Chalet Apartments
Project)/(General Electric
Capital Corp. LOC) 3,300,000
1,000,000 Savannah, GA EDA, (Series
1995A) Weekly VRDNs (Home
Depot, Inc.) 1,000,000
TOTAL 8,400,000
HAWAII-1.9%
4,995,000 2 Hawaii State Airport System, (Second Series 1991) PT-163,
3.10% TOBs (AMBAC Financial Group, Inc. INS)/(Banque Nationale
de Paris LIQ),
Optional Tender 1/13/2000 4,995,000
ILLINOIS-5.0%
3,200,000 Chicago, IL, (Series 1997)
Weekly VRDNs (Trendler
Components,
Inc.)/(American National
Bank, Chicago LOC) 3,200,000
6,000,000 Chicago, IL, Gas Supply
Revenue Bonds (1993 Series
B), 3.20% TOBs (Peoples Gas
Light & Coke Co.), Optional
Tender 12/1/1999 6,000,000
1,295,000 Illinois Development
Finance Authority Weekly
VRDNs (Olympic Steel,
Inc.)/
(National City Bank, Ohio
LOC) 1,295,000
2,359,000 Peoria, IL, (Series 1996)
Weekly VRDNs (J.T. Fennell
Company, Inc. Project)/
(Bank One, Illinois, N.A.
LOC) 2,359,000
TOTAL 12,854,000
INDIANA-4.6%
1,500,000 Huntington, IN, (Series
1998) Weekly VRDNs (DK
Enterprises LLC)/(Norwest
Bank Minnesota, N.A. LOC) 1,500,000
2,000,000 Huntington, IN, (Series
1998) Weekly VRDNs
(Huesing Industries,
Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 2,000,000
1,325,000 Indiana Development
Finance Authority,
Economic Development
Revenue Refunding Bonds
Weekly VRDNs (T. M. Morris
Manufacturing Co., Inc.
Project)/(Bank One,
Indiana, N.A. LOC) 1,325,000
1,000,000 Indiana Economic
Development Commission,
Revenue Bonds (Series
1989) Weekly VRDNs (O'Neal
Steel, Inc.)/(SouthTrust
Bank of Alabama,
Birmingham LOC) 1,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
INDIANA-CONTINUED
$ 1,085,000 Tipton, IN, (Series 1997)
Weekly VRDNs (MCJS,
LLC)/(Bank One, Indiana,
N.A. LOC) $ 1,085,000
3,000,000 Wayne Township, IN Metro
School District, 3.55%
TANs, 12/31/1999 3,004,246
2,000,000 Whitley County, IN
Consolidated Schools,
3.55% TANs, 12/31/1999 2,004,561
TOTAL 11,918,807
IOWA-0.5%
1,265,000 Iowa Finance Authority,
(Series 1998) Weekly VRDNs
(Schumacher Elevator)/
(Norwest Bank Minnesota,
N.A. LOC) 1,265,000
KANSAS-0.6%
1,435,000 Olathe, KS, (Series 1998)
Weekly VRDNs (Eskridge,
Inc.)/(Commerce Bank,
Kansas City, N.A. LOC) 1,435,000
KENTUCKY-10.7%
6,000,000 Berea, KY, (Series 1997)
Weekly VRDNs (Tokico
(USA), Inc.)/(Bank of
Tokyo-Mitsubishi Ltd. LOC) 6,000,000
3,500,000 Henderson City, KY, Series
1998 Weekly VRDNs (Vincent
Industrial Plastics,
Inc.)/(SunTrust Bank,
Nashville LOC) 3,500,000
1,095,000 Jefferson County, KY
Weekly VRDNs (Advanced
Filtration, Inc.)/(Bank
One, Kentucky LOC) 1,095,000
2,000,000 Kentucky Housing Corp.,
(Series C), 3.20% TOBs
12/31/1999 2,000,000
5,995,000 Kentucky Housing Corp.,
Variable Rate Certificates (Series 1998 O), 3.80% TOBs (Bank of
America NT and SA, San Francisco LIQ),
Mandatory Tender 8/10/1999 5,995,000
5,000,000 Kentucky Housing Corp.,
Variable Rate Certificates (Series 1998 W), 3.25% TOBs (Bank of
America NT and SA, San Francisco LIQ),
Optional Tender 6/15/1999 5,000,000
2,325,000 Muhlenberg County, KY,
(Series 1997) Weekly VRDNs
(Plastic Products Co.
Project)/(Norwest Bank
Minnesota, N.A. LOC) 2,325,000
1,575,000 Muhlenberg County, KY,
(Series A) Weekly VRDNs
(Plastic Products Co.
Project)/(Norwest Bank
Minnesota, N.A. LOC) 1,575,000
TOTAL 27,490,000
MARYLAND-4.2%
3,705,000 Maryland State Community
Development
Administration, (Series
1990 C) Weekly VRDNs
(Cherry Hill Apartment
Ltd.)/(Nationsbank, N.A.,
Charlotte LOC) 3,705,000
985,000 Maryland State Community
Development
Administration, (Series
1990A) Weekly VRDNs
(College Estates)/(FMB
Bank LOC) 985,000
6,000,000 Maryland State Community
Development
Administration, (Series
1990B) Weekly VRDNs
(Cherry Hill Apartment
Ltd.)/(Nationsbank, N.A.,
Charlotte LOC) 6,000,000
TOTAL 10,690,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
MASSACHUSETTS-1.9%
$ 4,800,000 Massachusetts IFA Weekly
VRDNs (Commonwealth Laurel
Lake Realty)/
(KeyBank, N.A. LOC) $ 4,800,000
MINNESOTA-4.1%
915,000 Byron, MN Weekly VRDNs
(Schmidt
Printing)/(Norwest Bank
Minnesota, N.A. LOC) 915,000
5,000,000 2 Dakota County, Washington
County & Anoka City, MN Housing & Redevelopment Authority,
MERLOTS (Series H), 3.15% TOBs (United States Treasury COL)/
(First Union National Bank, Charlotte, NC LIQ),
Optional Tender 6/1/1999 5,000,000
2,700,000 Thief River Falls, MN,
Northland Village
Apartments (Series 1999),
4.495% TOBs (Nationsbank,
N.A., Charlotte) 5/1/2000 2,700,000
2,000,000 White Bear Lake, MN,
Century Townhomes (Series
1997), 4.146% TOBs
(Westdeutsche Landesbank
Girozentrale), Optional
Tender 5/1/2000 2,000,000
TOTAL 10,615,000
MISSISSIPPI-0.5%
1,300,000 Senatobia, MS Weekly VRDNs
(Deltona Lighting
Products,
Inc.)/(Southtrust Bank of
West Florida, St.
Petersburg LOC) 1,300,000
MULTI STATE-9.9%
1,000,000 Charter Mac Floater
Certificates Trust I,
(First Tranche) Weekly
VRDNs (MBIA INS)/
(Bayerische Landesbank
Girozentrale, Commerzbank
AG, Frankfurt and Credit
Communal de Belgique,
Brussles LIQs) 1,000,000
21,500,000 Charter Mac Floater
Certificates Trust I,
(Second Tranche) Weekly
VRDNs (MBIA INS)/
(Bayerische Landesbank
Girozentrale, Commerzbank
AG, Frankfurt and Credit
Communal de Belgique,
Brussles LIQs) 21,500,000
3,000,000 Charter Mac Floater
Certificates Trust I,
(Third Tranche) Weekly
VRDNs (MBIA INS)/
(Bayerische Landesbank
Girozentrale, Commerzbank
AG, Frankfurt and Credit
Communal de Belgique,
Brussles LIQs) 3,000,000
TOTAL 25,500,000
NEVADA-1.0%
2,500,000 Director of the State of
Nevada Weekly VRDNs
(Smithey-Oasis Co.)/
(Mellon Bank N.A.,
Pittsburgh LOC) 2,500,000
NEW HAMPSHIRE-1.3%
1,345,000 New Hampshire Business
Finance Authority, IDRB
(Series A) Weekly VRDNs
(Upper Valley
Press)/(KeyBank, N.A. LOC) 1,345,000
2,000,000 New Hampshire State IDA,
(Series 1991), 4.25% TOBs
(International Paper Co.),
Optional Tender 10/15/1999 2,000,000
TOTAL 3,345,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
NEW JERSEY-1.9%
$ 1,850,025 Berkeley Township, NJ,
3.50% BANs, 7/30/1999 $ 1,850,757
3,000,000 Lakewood Township, NJ,
3.50% BANs, 7/28/1999 3,001,371
TOTAL 4,852,128
NORTH DAKOTA-0.4%
1,145,000 Fargo, ND, IDRB (Series
1994) Weekly VRDNs (Pan-O-
Gold Baking Co.
Project)/(Norwest Bank
Minnesota, N.A. LOC) 1,145,000
OHIO-13.2%
8,000,000 Banc One Capital Higher
Education Tax-Exempt
Income Trust, (Series 2
Certificates of Ownership)
Weekly VRDNs (Bank One,
Kentucky LOC) 8,000,000
4,700,000 Clermont County, OH,
Variable Rate IDRB's
(Series 1997) Weekly VRDNs
(Buriot International,
Inc.)/(KeyBank, N.A. LOC) 4,700,000
5,000,000 Edgewood City, OH School
District, 3.80% BANs,
6/30/1999 5,002,380
2,500,000 Medina County, OH Weekly
VRDNs (Three D Metals,
Inc.)/(Bank One,
Ohio, N.A. LOC) 2,500,000
1,400,000 Medina County, OH, Solid
Waste Disposal Revenue
Bonds (Series 1995) Weekly
VRDNs (Valley City Steel
Company Project)/(KeyBank,
N.A. LOC) 1,400,000
3,300,000 Ohio HFA, Trust Receipts (Series 1997 FR/RI-14) Weekly VRDNs
(GNMA GTD)/ (Bank of New York, New York
LIQ) 3,300,000
1,000,000 Ohio State Building
Authority, (Series C),
7.20% Bonds (United States
Treasury PRF), 10/1/1999
(@103) 1,042,736
2,700,000 South Euclid-Lyndhurst, OH
City School District,
3.40% BANs, 2/10/2000 2,705,464
775,000 Strongsville, OH, 3.40%
BANs, 11/4/1999 775,802
4,500,000 Summit County, OH IDR,
(Series 1994) Weekly VRDNs
(Harry London Candies,
Inc.)/(Bank One, Ohio,
N.A. LOC) 4,500,000
TOTAL 33,926,382
OREGON-0.8%
2,000,000 Oregon School Boards
Association, Pooled Short-
Term Borrowing Program
(Series 1998A), 4.00%
TRANs, 6/30/1999 2,000,000
PENNSYLVANIA-0.9%
450,000 Pennsylvania EDFA Weekly
VRDNs (Respironics,
Inc.)/(PNC Bank, N.A. LOC) 450,000
1,414,400 Pennsylvania EDFA, (Series
1992 C) Weekly VRDNs
(Leonard H.
Berenfield/Berenfield
Containers)/(PNC Bank,
N.A. LOC) 1,414,400
400,000 Pennsylvania EDFA, (Series
1998A) Weekly VRDNs
(Fourth Generation Realty,
LLC)/
(PNC Bank, N.A. LOC) 400,000
TOTAL 2,264,400
RHODE ISLAND-0.8%
2,000,000 Central Falls, RI, 3.90%
BANs, 7/15/1999 2,000,703
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
SOUTH DAKOTA-2.0%
$ 3,000,000 South Dakota Housing
Development Authority,
(1998 Series B),
3.75% BANs, 8/5/1999 $ 3,000,000
2,105,000 South Dakota Housing
Development Authority,
Homeownership Mortgage
Bonds (1997 Series E)
Weekly VRDNs 2,105,000
TOTAL 5,105,000
TENNESSEE-2.6%
500,000 Chattanooga, TN IDB,
(Series 1997) Weekly VRDNs
(YMCA Projects)/(SunTrust
Bank, Nashville LOC) 500,000
500,000 Hamilton County, TN IDB
Weekly VRDNs (Pavestone
Co.)/(Bank One,
Texas N.A. LOC) 500,000
1,500,000 Metropolitan Government
Nashville & Davidson
County, TN, GO UT Refunding
Bonds, 4.625% Bonds,
5/15/2000 1,519,882
1,500,000 Sevier County, TN Public
Building Authority, Local
Government Improvement
Bonds, (Series II-G-2)
Weekly VRDNs (Knoxville,
TN)/(AMBAC Financial
Group, Inc. INS)/(KBC
Bancassurance Holding LIQ) 1,500,000
2,600,000 Shelby County, TN Health
Education & Housing
Facilities Board,
Multifamily
Housing Revenue Bonds
(Series 1988) Weekly VRDNs
(Arbor Lake Project)/
(PNC Bank, N.A. LOC) 2,600,000
100,000 Union City, TN IDB, (Series
1995) Weekly VRDNs (Kohler
Co.)/(Wachovia Bank
of NC, N.A., Winston-Salem
LOC) 100,000
TOTAL 6,719,882
TEXAS-2.4%
2,000,000 Angelina and Neches River
Authority, Texas, Solid
Waste Disposal Revenue
Bonds (Series 1993), 3.70%
CP (Temple-Eastex,
Inc.)/(Temple-Inland, Inc.
GTD), Mandatory Tender
6/8/1999 2,000,000
3,200,000 Tarrant County, TX IDC
Weekly VRDNs (Holden
Business Forms)/(Norwest
Bank Minnesota, N.A. LOC) 3,200,000
1,000,000 Tarrant County, TX IDC,
(Series 1997) Weekly VRDNs
(Lear Operations Corp.)/
(Chase Manhattan Bank
N.A., New York LOC) 1,000,000
TOTAL 6,200,000
VIRGINIA-5.1%
4,500,000 Campbell County, VA IDA,
Solid Waste Disposal
Facilities Revenue ACES
Weekly VRDNs (Georgia-
Pacific Corp.)/(SunTrust
Bank, Atlanta LOC) 4,500,000
6,000,000 2 Fairfax County, VA EDA,
Trust Receipt FR/RI-A15
(Series 1999), 3.30% TOBs
(AMBAC Financial Group,
Inc. INS)/(National
Westminster Bank, PLC,
London LIQ), Mandatory
Tender 8/2/1999 6,000,000
2,500,000 Halifax, VA IDA, MMMs, PCR,
3.25% CP (Virginia
Electric Power Co.),
Mandatory Tender 8/9/1999 2,500,000
TOTAL 13,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
SHORT-TERM MUNICIPALS-
continued 1
WEST VIRGINIA-0.8%
$ 2,000,000 Ritchie County, WV, IDRB
(Series 1996) Weekly VRDNs
(Simonton Building
Products, Inc.)/(PNC Bank,
N.A. LOC) $ 2,000,000
WISCONSIN-3.5%
1,700,000 Combined Locks, WI,
Development Revenue Bonds,
Series 1997 Weekly VRDNs
(Appleton Papers)/(Bank of
Nova Scotia, Toronto LOC) 1,700,000
1,500,000 Lancaster, WI Community
School District, 3.60%
TRANs, 10/29/1999 1,501,787
1,280,000 Milwaukee, WI Weekly VRDNs
(Pelton Casteel,
Inc.)/(Norwest Bank
Minnesota, N.A. LOC) 1,280,000
2,000,000 Plymouth, WI IDB Weekly
VRDNs (Great Lakes
Cheese)/(Rabobank
Nederland, Utrecht LOC) 2,000,000
600,000 Portage, WI, IDRB (Series
1994) Weekly VRDNs
(Portage Industries Corp.
Project)/(Bank One,
Wisconsin, N.A. LOC) 600,000
1,995,000 Wisconsin Housing &
Economic Development
Authority, Business
Development Revenue Bonds
(Series 1995) Weekly VRDNs
(Carlson Tool &
Manufacturing Corp.)/
(Firstar Bank, Milwaukee
LOC) 1,995,000
TOTAL 9,076,787
WYOMING-2.1%
5,510,000 2 Wyoming Community
Development Authority, PT-
195, 3.35% TOBs (Banco
Santander Central Hispano,
S.A. LIQ) 5/1/2000 5,510,000
TOTAL INVESTMENTS (AT
AMORTIZED COST) 3 $ 257,232,089
</TABLE>
Securities that are subject to Alternative Minimum Tax represent 85.1% of the
portfolio as calculated based upon total portfolio market value.
1 The fund may only invest in securities rated in one of the two highest
short-term rating categories by nationally recognized statistical rating
organizations ("NRSROs") or unrated securities of comparable quality. An NRSRO's
two highest rating categories are determined without regard for sub-categories
and gradations. For example, securities rated SP-1+, SP-1 or SP-2 by Standard &
Poor's, MIG-1, or MIG-2 by Moody's Investors Service, Inc., F-1+, F-1 and F-2 by
Fitch IBCA, Inc. are all considered rated in one of the two highest short-term
rating categories.
Securities rated in the highest short-term rating category (and unrated
securities of comparable quality) are identified as First Tier securities.
Securities rated in the second highest short-term rating category (and unrated
securities of comparable quality) are identified as Second Tier securities. The
fund follows applicable regulations in determining whether a security is rated
and whether a security rated by multiple NRSROs in different rating categories
should be identified as a First or Second Tier security. At May 31, 1999, the
portfolio securities were rated as follows:
Tier Rating Based On Total Market Value (Unaudited)
FIRST TIER Second Tier
94.85% 5.15%
2 Denotes a restricted security which is subject to restrictions on resale under
federal securities laws. These securities have been deemed liquid based upon
criteria approved by the fund's board of directors. At May 31, 1999, these
securities amounted to $24,165,000 which represents 9.39% of net assets.
3 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($257,445,206) at May 31, 1999.
The following acronyms are used throughout this portfolio:
ACES -Adjustable Convertible Extendable Securities AMBAC -American Municipal
Bond Assurance Corporation BANs -Bond Anticipation Notes COL -Collateralized CP
- -Commercial Paper EDA -Economic Development Authority EDFA -Economic Development
Financing Authority GNMA -Government National Mortgage Association GO -General
Obligation GTD -Guaranty HFA -Housing Finance Authority IDA -Industrial
Development Authority IDB -Industrial Development Bond IDC -Industrial
Development Corporation IDR -Industrial Development Revenue IDRB -Industrial
Development Revenue Bond IFA -Industrial Finance Authority INS -Insured LIQ
- -Liquidity Agreement LLC -Limited Liability Company LOC -Letter of Credit MBIA
- -Municipal Bond Investors Assurance
MERLOTS -Municipal Exempt Receipts - Liquidity Optional Tender Series MMMs
- -Money Market Municipals PCR -Pollution Control Revenue PLC -Public Limited
Company PRF -Prerefunded SA -Support Agreement TANs -Tax Anticipation Notes TOBs
- -Tender Option Bonds TRANs -Tax and Revenue Anticipation Notes UT -Unlimited Tax
VRDNs -Variable Rate Demand Notes
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999
<TABLE>
<S> <C> <C>
ASSETS:
Total investments in
securities, at amortized
cost and value $ 257,232,089
Income receivable 1,648,596
Receivable for shares sold 34,583
TOTAL ASSETS 258,915,268
LIABILITIES:
Income distribution
payable $ 222,765
Payable to Bank 1,184,061
Accrued expenses 63,236
TOTAL LIABILITIES 1,470,062
Net assets for 257,445,206
shares outstanding $ 257,445,206
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$257,445,206 / 257,445,206
shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MAY 31, 1999
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 9,572,126
EXPENSES:
Investment advisory fee $ 1,355,245
Administrative personnel
and services fee 204,390
Custodian fees 14,663
Transfer and dividend
disbursing agent fees and
expenses 68,827
Directors'/Trustees' fees 8,231
Auditing fees 13,185
Legal fees 22,169
Portfolio accounting fees 62,775
Distribution services fee 542,149
Share registration costs 37,214
Printing and postage 8,786
Insurance premiums 35,666
Miscellaneous 5,728
TOTAL EXPENSES 2,379,028
WAIVER:
Waiver of investment
advisory fee (171,453)
Net expenses 2,207,575
Net investment income $ 7,364,551
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 7,364,551 $ 8,334,333
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (7,364,551) (8,334,333)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 1,184,015,170 1,285,533,598
Net asset value of shares
issued to shareholders in
payment of
distributions declared 6,774,275 7,736,401
Cost of shares redeemed (1,199,420,167) (1,280,300,555)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS (8,630,722) 12,969,444
Change in net assets (8,630,722) 12,969,444
NET ASSETS:
Beginning of period 266,075,928 253,106,484
End of period $ 257,445,206 $ 266,075,928
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.03 0.03 0.03 0.03 0.03
LESS DISTRIBUTIONS:
Distributions from net investment income (0.03) (0.03) (0.03) (0.03) (0.03)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 2.76% 3.09% 2.96% 3.22% 3.02%
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 0.88% 0.85% 0.95% 1.10% 1.02%
Net investment income 2 2.65% 2.99% 2.77% 2.86% 2.68%
Expenses (after waivers) 0.81% 0.81% 0.79% 0.79% 0.79%
Net investment income (after waivers) 2.72% 3.03% 2.93% 3.17% 2.91%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $257,445 $266,076 $253,106 $59,888 $67,611
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period, certain fees were voluntarily waived and reimbursed. If
such voluntary waivers had not occurred, the ratios would have been as
indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999
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"). The financial
statements of the other portfolio are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held. The investment objective of the Fund is to
provide current income exempt from federal regular income tax consistent with
stability of principal.
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 uses the amortized cost method to value its portfolio securities 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.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from such registration.
Many restricted securities may be resold in the secondary market in transactions
exempt from registration. In some cases, the restricted securities may be resold
without registration upon exercise of a demand feature. Such restricted
securities may be determined to be liquid under criteria established by the
Board of Trustees (the "Trustees"). The Fund will not incur any registration
costs upon such resales. Restricted securities are valued at amortized cost in
accordance with Rule 2a-7 under the Act.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At May
31, 1999, capital paid-in aggregated $257,445,206. Transactions in shares were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
Shares sold 1,184,015,170 1,285,533,598
Shares issued to
shareholders in payment of
distributions declared 6,774,275 7,736,401
Shares redeemed (1,199,420,167) (1,280,300,555)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS (8,630,722) 12,969,444
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company (formerly 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, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
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.
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.
INTERFUND TRANSACTIONS
During the period ended May 31, 1999, 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 $557,498,000 and $575,175,000,
respectively.
GENERAL
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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 (a portfolio of Cash Trust Series II), including the
portfolio of investments, as of May 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended May 31, 1999 and 1998, and the financial highlights for the
years 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, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Municipal Cash Series II as of May 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for the years ended May 31,
1999 and 1998, and the financial highlights for the years presented, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 20, 1999
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
DEBORAH A. CUNNINGHAM
Vice President
MARY JO OCHSON
Vice President
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment
risk, including the possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
[Graphic]
Federated
World-Class Investment Manager
ANNUAL REPORT
Municipal Cash Series II
A Portfolio of Cash Trust Series II
ANNUAL REPORT
TO SHAREHOLDERS
MAY 31, 1999
[Graphic]
Federated
Municipal Cash Series II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 147552103
G00887-01 (7/99)
[Graphic]
ANNUAL REPORT
President's Message
Dear Shareholder:
I am pleased to present the Annual Report for Treasury Cash Series II, a
portfolio of Cash Trust Series II, which covers the 12-month period from June 1,
1998 through May 31, 1999. The report begins with an investment review by the
fund's portfolio manager, followed by a complete listing of the fund's
investments and its financial statements.
Treasury Cash Series II is a highly conservative way to help your ready cash
earn daily income while offering you the advantages of daily liquidity and
stability of principal. 1 The fund invests in some of the safest types of
investments available, short-term U.S. Treasury obligations or repurchase
agreements backed by these obligations.
During the reporting period, the fund paid a total of $0.04 in dividends per
share. On May 31, 1999, the fund's net assets totaled $233 million.
As always, we thank you for choosing Treasury Cash Series II. Please contact
your investment representative if you have any questions about your investment.
We look forward to keeping you up to date on your investment.
Sincerely,
[Graphic]
Richard B. Fisher
President
July 15, 1999
1 An investment in money market funds is neither insured nor guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
money market funds seek to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the fund.
Investment Review
Treasury Cash Series II is invested in direct obligations of the U.S. Treasury,
either in the form of notes and bills or as collateral for repurchase
agreements. The fund is rated AAAm by Standard & Poor's ("S&P") 1 and Aaa by
Moody's Investors Service, Inc. ("Moody's").2
The annual reporting period was characterized by dramatic shifts in market
sentiment and expectations regarding the path of U.S. monetary policy. Early in
the reporting period, economic fundamentals drove movements in short-term
interest rates. With economic growth strong and inflation benign, market
participants were convinced that the Federal Reserve Board (the "Fed") would
remain on the sidelines, in spite of the tightening bias that it had adopted at
the March 1998 Federal Open Market Committee meeting.
By the third quarter of 1998, however, uncertainty in the world economies
introduced vulnerability into the domestic equity market, and led to a
substantial flight-to-quality to U.S. Treasury securities across the yield
curve. Economic trouble spread from Asia to include Russia and Latin America.
What had been perceived to have been a fairly modest drag on the U.S. economy as
a result of the remote Asian crisis became an overpowering influence on the
market and expectations regarding future U.S. growth. By August of 1998, the Fed
had abandoned its tightening bias, and by late September had taken what was to
be the first of three 25 basis point monetary policy easings in an attempt to
calm the financial markets and relieve the credit and liquidity constraints that
were evident. While this first move had little effect on lessening investors'
fears, the subsequent step-an intermeeting move in mid-October and another in
mid-November-that brought the Fed Funds Target Rate down to its current 4.75%
level had the desired result.
In the midst of this turmoil, however, strong consumer demand continued to
stimulate the U.S. economy. After posting a 6.00% pace of growth in the fourth
quarter of 1998, the economy entered the new year with considerable strength.
Although growth in the first quarter slowed modestly to around 4.00%, this pace
still was well above what has traditionally been viewed as being the
non-inflationary potential. Nonetheless, signs of inflation remained remarkably
absent. By May 31, 1999, however, lingering concern over the health of the
global economies had been replaced by apprehension that the Fed might be forced
to tighten monetary policy in order to ward off future inflationary pressures.
1 This rating is obtained after S&P evaluates a number of factors, including
credit quality, market price exposure and management. S&P monitors the portfolio
weekly for developments that could cause changes in the ratings. Ratings are
subject to change and do not remove market risks.
2 Money market funds and bond funds rated Aaa by Moody's are judged to be of an
investment quality similar to Aaa-rated fixed-income obligations; that is, they
are judged to be of the best quality. Ratings are subject to change, and do not
remove market risks.
Movements in short-term interest rates reflected the shifting sentiment over the
annual reporting period. The yield on the three-month Treasury bill traded
between 5.00% and 5.20% from June 1998 to mid-August. It then plummeted to a low
of 3.60% at the height of the liquidity crisis in mid- October, as investors
seeking a safe haven flooded the U.S. Treasury market. As the easing steps taken
by the Fed calmed the markets, the yield on this security rebounded to trade at
around 4.45% at the beginning of 1999. The movements in interest rates for very
short-term Treasury securities were influenced by technical factors over the
period as well. The Treasury department's use of short-term cash management
bills to meet temporary shortfalls in the Treasury's cash balances introduced
additional volatility into this segment of the Treasury market. This was
particularly evident in the first quarter of 1999, when the Treasury issued over
$100 billion of cash management bills to provide interim financing until tax
receipts were collected in April. As a result of this influx in supply, the
three-month T-Bill rose to almost 4.70% in late February, and then declined to
4.30% in April when these securities matured, then rebounded to 4.60% by the
close of the period in May.
Early in the period, we targeted the fund's average maturity within a 35- 45 day
average maturity range, moving within that range according to relative value
opportunities. As the flood of investors to the Treasury market in the bottom
half of the year drove yields sharply downward, the fund's average maturity
drifted below that range as repurchase agreements offered substantially more
attractive yields. As the Fed's easing steps took hold and the market turbulence
subsided, we moved the fund's average maturity target range to a 40-50 day range
in the first quarter of 1999. As the robust pace of growth of the economy
ignited fears of a near-term tightening in monetary policy by the Fed, we
extended the average maturity of the portfolio to the upper end of that target
range in late February. Since that time, the fund's average maturity has drifted
lower as legitimate evidence has mounted that the Fed will tighten monetary
policy at the end of June in a preemptive move against inflationary pressures.
The Fed confirmed those expectations with a 25 basis point tightening on June
30, 1999.
Portfolio of Investments
MAY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
SHORT-TERM U.S. TREASURY
OBLIGATION-19.2%
U.S. TREASURY BILL-0.2% 1
$ 500,000 4.470%, 3/30/2000 $ 481,189
U.S. TREASURY NOTES-19.0%
44,000,000 5.375% - 7.750%, 6/30/1999
- 5/31/2000 44,297,881
TOTAL SHORT-TERM
U.S. TREASURY OBLIGATIONS 44,779,070
REPURCHASE AGREEMENTS-
80.5% 2
10,000,000 ABN AMRO, Inc., 4.820%,
dated 5/28/1999, due
6/1/1999 10,000,000
10,000,000 Barclays de Zoete Wedd
Securities, Inc., 4.800%,
dated 5/28/1999, due
6/1/1999 10,000,000
10,000,000 Bear, Stearns and Co.,
4.830%, dated 5/28/1999,
due 6/1/1999 10,000,000
10,000,000 CIBC Wood Gundy Securities
Corp., 4.780%, dated
5/28/1999, due 6/1/1999 10,000,000
10,000,000 CIBC Wood Gundy Securities
Corp., 4.810%, dated
5/28/1999, due 6/1/1999 10,000,000
8,000,000 3 Credit Suisse First
Boston, Inc., 4.720%,
dated 4/8/1999, due
6/7/1999 8,000,000
2,000,000 3 Credit Suisse First
Boston, Inc., 4.780%,
dated 3/3/1999, due
6/1/1999 2,000,000
5,000,000 3 Deutsche Bank Government
Securities, Inc., 4.770%,
dated 5/18/1999, due
6/30/1999 5,000,000
22,700,000 Deutsche Bank Government
Securities, Inc., 4.820%,
dated 5/28/1999, due
6/1/1999 22,700,000
10,000,000 Donaldson, Lufkin and
Jenrette Securities Corp.,
4.800%, dated 5/28/1999,
due 6/1/1999 10,000,000
10,000,000 Lehman Brothers, Inc.,
4.800%, dated 5/28/1999,
due 6/1/1999 10,000,000
9,000,000 3 Merrill Lynch Government
Securities, 4.760%, dated
5/12/1999, due 8/10/1999 9,000,000
3,000,000 3 Merrill Lynch Government
Securities, 4.900%, dated
5/28/1999, due 8/30/1999 3,000,000
10,000,000 Morgan Stanley Group,
Inc., 4.820%, dated
5/28/1999, due 6/1/1999 10,000,000
10,000,000 Salomon Smith Barney,
Inc., 4.800%, dated
5/28/1999, due 6/1/1999 10,000,000
10,000,000 Societe Generale
Securities Corp., 4.800%,
dated 5/28/1999, due
6/1/1999 10,000,000
10,000,000 Toronto Dominion
Securities (USA) Inc.,
4.820%, dated 5/28/1999,
due 6/1/1999 10,000,000
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<S> <C> <C>
REPURCHASE AGREEMENTS-
continued 2
$ 8,000,000 3 Warburg Dillon Reed LLC,
4.730%, dated 4/30/1999,
due 7/29/1999 $ 8,000,000
10,000,000 Warburg Dillon Reed LLC,
4.800%, dated 5/28/1999,
due 6/1/1999 10,000,000
10,000,000 Westdeutsche Landesbank
Girozentrale, 4.800%,
dated 5/28/1999, due
6/1/1999 10,000,000
TOTAL REPURCHASE
AGREEMENTS 187,700,000
TOTAL INVESTMENTS (AT
AMORTIZED COST) 4 $ 232,479,070
</TABLE>
1 Each issue shows the rate of discount at time of purchase.
2 The repurchase agreements are fully collateralized by U.S. government and/or
agency obligations based on market prices at the date of the portfolio. The
investments in the repurchase agreements are through participation in joint
accounts with other Federated funds.
3 Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase agreement
within seven days.
4 Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($233,036,854) at May 31, 1999.
The following acronym is used throughout this portfolio:
LLC -Limited Liability Company
See Notes which are an integral part of the Financial Statements
Statement of Assets and Liabilities
MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
Investments in repurchase
agreements $ 187,700,000
Investment in securities 44,779,070
Total investments in
securities, at amortized
cost and value $ 232,479,070
Cash 753,007
Receivable for investments
sold 3,900,000
Income receivable 961,564
TOTAL ASSETS 238,093,641
LIABILITIES:
Payable for investments
purchased 4,003,041
Payable for shares
redeemed 637,111
Income distribution
payable 354,676
Accrued expenses 61,959
TOTAL LIABILITIES 5,056,787
Net assets for 233,036,854
shares outstanding $ 233,036,854
NET ASSET VALUE, OFFERING
PRICE AND REDEMPTION
PROCEEDS PER SHARE:
$233,036,854 / 233,036,854
shares outstanding $1.00
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Operations
YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 10,544,004
EXPENSES:
Investment advisory fee $ 1,031,559
Administrative personnel
and services fee 155,559
Custodian fees 33,991
Transfer and dividend
disbursing agent fees and
expenses 51,562
Directors'/Trustees' fees 5,535
Auditing fees 13,112
Legal fees 6,395
Portfolio accounting fees 58,329
Distribution services fee 398,182
Share registration costs 20,368
Printing and postage 8,546
Insurance premiums 578
Miscellaneous 5,787
TOTAL EXPENSES 1,789,503
WAIVER:
Waiver of investment
advisory fee (77,115)
Net expenses 1,712,388
Net investment income $ 8,831,616
</TABLE>
See Notes which are an integral part of the Financial Statements
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS
OPERATIONS:
Net investment income $ 8,831,616 $ 12,532,262
DISTRIBUTIONS TO
SHAREHOLDERS:
Distributions from net
investment income (8,831,616) (12,532,262)
SHARE TRANSACTIONS:
Proceeds from sale of
shares 952,869,243 755,859,593
Net asset value of shares
issued to shareholders in
payment of
distributions declared 4,568,351 7,918,633
Cost of shares redeemed (951,067,767) (880,182,180)
CHANGE IN NET ASSETS
RESULTING FROM SHARE
TRANSACTIONS 6,369,827 (116,403,954)
Change in net assets 6,369,827 (116,403,954)
NET ASSETS:
Beginning of period 226,667,027 343,070,981
End of period $ 233,036,854 $ 226,667,027
</TABLE>
See Notes which are an integral part of the Financial Statements
Financial Highlights
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.04 0.05 0.05 0.05 0.04
LESS DISTRIBUTIONS:
Distributions from net investment income (0.04) (0.05) (0.05) (0.05) (0.04)
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
TOTAL RETURN 1 4.39% 4.88% 4.65% 4.97% 4.47%
RATIOS TO AVERAGE NET ASSETS:
Expenses 2 0.87% 0.85% 0.86% 0.87% 0.88%
Net investment income 2 4.24% 4.74% 4.54% 4.82% 4.40%
Expenses (after waivers) 0.83% 0.83% 0.85% 0.86% 0.88%
Net investment income (after waivers) 4.28% 4.76% 4.55% 4.83% 4.40%
SUPPLEMENTAL DATA:
Net assets, end of period (000 omitted) $233,037 $226,667 $343,071 $402,378 $243,651
</TABLE>
1 Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
2 During the period certain fees were voluntarily waived. If such waivers had
not occurred, the ratios would have been as indicated.
See Notes which are an integral part of the Financial Statements
Notes to Financial Statements
MAY 31, 1999
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"). 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 to
provide current income consistent with stability of principal and liquidity.
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 uses the amortized cost method to value its portfolio securities 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").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less than
the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Interest income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as amended
(the "Code"). Dividend income and 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts of assets, liabilities, expenses and revenues reported in the
financial statements. Actual results could differ from those estimated.
OTHER
Investment transactions are accounted for on the trade date.
SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and financial fractional shares of beneficial interest (without par value).
At May 31, 1999, capital paid-in aggregated $233,036,854.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31 1999 1998
<S> <C> <C>
Shares sold 952,869,243 755,859,593
Shares issued to
shareholders in payment of
distributions declared 4,568,351 7,918,633
Shares redeemed (951,067,767) (880,182,180)
NET CHANGE RESULTING FROM
SHARE TRANSACTIONS 6,369,827 (116,403,954)
</TABLE>
INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Federated Investment Management Company, 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, Inc. for the period. The
administrative fee received during the period of the Administrative Services
Agreement shall be at least $125,000 per portfolio and $30,000 per each
additional class of shares.
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.
SHAREHOLDER SERVICES FEE
Under the terms of a Shareholder Services Agreement with Federated Shareholder
Services Company ("FSSC"), the Fund will pay FSSC up to 0.25% of average daily
net assets of the Fund shares for the period. The fee paid to FSSC is used to
finance certain services for shareholders and to maintain shareholder accounts.
For the period ended May 31, 1999, the Fund shares did not incur a shareholder
services fee. FSSC may voluntarily choose to waive any portion of its fee. FSSC
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, 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 Directors of the Corporation are Officers and
Directors or Trustees of the above companies.
YEAR 2000 (UNAUDITED)
Similar to other financial organizations, the Fund could be adversely affected
if the computer systems used by the Fund's service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. The Fund's Adviser and Administrator are taking measures that they
believe are reasonably designed to address the Year 2000 issue with respect to
computer systems that they use and to obtain reasonable assurances that
comparable steps are being taken by each of the Fund's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Fund.
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 (a portfolio of Cash Trust Series II), including the portfolio of
investments, as of May 31, 1999, and the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended May
31, 1999 and 1998, and the financial highlights for the years 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, 1999, by correspondence with the custodian and brokers; where replies
were not received, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Treasury Cash Series II as of May 31, 1999, the results of its operations for
the year then ended, the changes in its net assets for the years then ended May
31, 1999 and 1998 and the financial highlights for the years presented, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
July 20, 1999
Trustees
JOHN F. DONAHUE
THOMAS G. BIGLEY
JOHN T. CONROY, JR.
NICHOLAS P. CONSTANTAKIS
JOHN F. CUNNINGHAM
J. CHRISTOPHER DONAHUE
LAWRENCE D. ELLIS, M.D.
PETER E. MADDEN
JOHN E. MURRAY, JR., J.D., S.J.D.
MARJORIE P. SMUTS
Officers
JOHN F. DONAHUE
Chairman
RICHARD B. FISHER
President
J. CHRISTOPHER DONAHUE
Executive Vice President
EDWARD C. GONZALES
Executive Vice President
JOHN W. MCGONIGLE
Executive Vice President and Secretary
DEBORAH A. CUNNINGHAM
Vice President
MARY JO OCHSON
Vice President
RICHARD J. THOMAS
Treasurer
LESLIE K. ROSS
Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any
bank, and are not insured or guaranteed by the U.S. government, the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investment in mutual funds involves investment
risk, including possible loss of principal.
This report is authorized for distribution to prospective investors only when
preceded or accompanied by the fund's prospectus which contains facts concerning
its objective and policies, management fees, expenses, and other information.
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Federated
World-Class Investment Manager
ANNUAL REPORT
Treasury Cash Series II
A Portfolio of Cash Trust Series II
ANNUAL REPORT TO SHAREHOLDERS
MAY 31, 1999
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Federated
Treasury Cash Series II
Federated Investors Funds
5800 Corporate Drive
Pittsburgh, PA 15237-7000
1-800-341-7400
WWW.FEDERATEDINVESTORS.COM
Federated Securities Corp., Distributor
Cusip 147552301
G00889-01 (7/99)
[Graphic]
